Globalization and Similarities in Corporate Governance: A Cross-Country Analysis

Some scholars have argued that globalization should pressure firms to adopt a common set of the most efficient corporate governance practices, while others maintain that such convergence will not occur because of a variety of forms of path-dependence. With new data on governance in 24 developing countries as well as data on laws protecting shareholders and creditors in 49 developed and developing countries, we search for evidence that globalization is correlated with similarity in corporate governance. We find robust evidence of de jure similarity in governance. Interestingly, this is not driven by convergence to U.S. standards. Rather pairs of economically interdependent countries – especially if the countries are both economically developed appear to adopt common corporate governance standards, even after accounting for the effects of common legal origin. In contrast to the de jure results, we find virtually no evidence of de facto similarity in corporate governance in a battery of estimations at the country, industry and firm levels. This is consistent with either the proposition that complementarities result in different national systems appropriately having different corporate governance systems, or the proposition that globalization is not strong enough to overcome local vested interests. We conclude that globalization may have induced the adoption of some common corporate governance standards but that there is little evidence that these standards have been implemented. We are grateful to Michael Kremer, Dani Rodrik, Andrei Shleifer, John Sutton, and Louis Wells for helpful conversations, and for suggestions from seminar participants at the HBS/Tsinghua conference on Global Corporate Governance (Shanghai, July 2001), the Aspen Institute for Social Business/William Davidson Institute conference (Aspen, September 2001), the Harvard/MIT Growth and Development Seminar (October 2001), the University of Michigan Business School Corporate Strategy seminar, the Asian Development Bank conference on Corporate Governance (November 2001), Hitotsubashi University Economics Seminar (Tokyo, November 2001), Australian Graduate School of Management Seminar (Sydney, November 2001), Hong Kong University of Science and Technology Economics Seminar (November 2001), Columbia Law School Law & Economics Seminar (December 2001), Instituto Tecnológico Autónomo de México Business School seminar (February 2002), Pontificia Universidad Católica de Chile Business School seminar (March 2002), and Harvard Business School Accounting and Control seminar (April 2002). The HBS Division of Research generously funded this research. All errors remain our own.