jom 06 cg legitimacy - title page abstract

7/23/2019 JOM 06 CG Legitimacy - Title Page Abstract

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INSTITUTIONAL PREDICTORS OF

CORPORATE GOVERNANCE LEGITIMACY

by

William Q. Judge

2047 Constant HallCollege of Business & Public Administation

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3omas J. "ouglas

5cool of Business5outen 6llinois #ni$esity at d8ads$illed8ads$ille' 69 202

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INSTITUTIONAL PREDICTORS OF

CORPORATE GOVERNANCE LEGITIMACY

ABSTRACT

We studied =anel data fo co=oate go$enance atings in *: counties bet8een :++ and

200* to bette undestand 8at te county>le$el =edictos of co=oate go$enance legitimacy

migt be. #sing neo>institutional teoy' 8e found tat all tee foms of isomo=ism

influenced co=oate go$enance at te national>le$el. 5=ecifically' bot coeci$e isomo=ic

=essues 8ee =ositi$ely elated to =ecei$ed co=oate go$enance legitimacy. 6n addition' bot

mimetic isomo=ic =essues 8ee =ositi$ely elated to =ecei$ed legitimacy. ?inally' one

nomati$e =essue ,e.g.' eligious tension- 8as negati$ely elated to =ecei$ed legitimacy. 3is

study efines and etends te go$enance liteatue' as 8ell as te institutional =es=ecti$e.

Keywords@ Com=aati$e o$enance' o$enance 9egitimacy' 6nstitutional 3eoy

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Co=oate go$enance concens te stuctue of igts and es=onsibilities among te

=aties 8it a stae in te fim ,Aoi' 2000@ ::-. !bse$es inceasingly note tat co=oate

go$enance is te foundation of te emeging global economy ,Witeell' 2000-. %oneteless'

te di$esity of co=oate go$enance =actices tougout te 8old is emaable ,?ligstein &

?eeland' :++*-. #nfotunately' most studies of co=oate go$enance ae lagely etnocentic'

and =edominantly Anglo>Ameican in natue ,5aa & 5aa' 2000D 3unbull' :++7-.

6n te fe8 com=aati$e co=oate go$enance studies tat do eist' te eseac only

eamines t8o o tee counties' causation is not e=loed' and te focus is usually on one

staeolde gou= in isolation of ote gou=s ,5cne=e & uillen' 2004-. Ho8e$e' ecent

co=oate go$enance eseac demonstates tat county>le$el data influence go$enance

=actices muc moe tan fim> o e$en industy>le$el data ,"oige' national eseac demonstates tat co=oate go$enance affects

ostile taeo$e acti$ity ,5cne=e & uillen' 2004-' fim maet $alue ,Anonymous' 2002-' and

co=oate cou=tion acti$ity ,Wu' 200*-. #nfotunately' te coss>national antecedents of

co=oate go$enance ae muc less studied and' ence' undestood.

?om a sociological =es=ecti$e' "a$is ,200*- agued tat te most ele$ant and

=omising co=oate go$enance eseac sees to undestand te institutional contet in 8ic it

occus' ate tan te moe taditional agency o tansaction cost =es=ecti$e. ?o eam=le'

"eeg and PeeE ,2000- obse$ed tat te institutional con$egence 8itin te uo=ean #nion is

contibuting to te con$egence of co=oate go$enance =actices tee. Witin te economics

disci=line' oen8egen ,2004- ecently asseted tat institutional economics is sifting its focus

fom fims and indi$iduals to institutional en$ionments to bette e=lain co=oate go$enance

bea$io and esults. We ae sym=atetic to tese aguments' and attem=t to ad$ance tese ideas

toug em=iical analysis.

)


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5imila to Aguilea and Jacson ,200)-' 8e ague tat multi=le institutions inteact to

influence te =ecei$ed legitimacy of co=oate go$enance =actices 8itin a nation. %otably'

tee a$e been calls fo moe eseac on te tansnational natue of institutional teoy ,"acin'

oodstein & 5cott' 2002-' and tis study is a modest es=onse to tat call. By consideing te

coeci$e' mimetic' and nomati$e foces fo isomo=ism 8itin a boad ange of nations' 8e

attem=t to descibe and e=lain te antecedents of =ecei$ed co=oate go$enance legitimacy in

an intenational com=aati$e study duing te =eiod of :++ until 200*.

THEORETICAL BACKGROUND: AN INSTITUTIONAL PERSPECTIVE

As a dei$ati$e fame8o emeging fom o=en systems teoy' institutional teoy

em=asiEes tat oganiEations ae moe tan a means to =oduce goods and se$ices F tey ae

also social and cultual systems. As suc' tis teoy agues tat oganiEations' and

oganiEational actos' not only see to com=ete fo esouces' but tey ultimately see legitimacy

,5ucman' :++*-.

?om tis =es=ecti$e' one of te eys to undestanding social systems is by studying te

institutional en$ionment because it is tese foces 8ic guide o constain legitimacy seeing.

Wile te conce=t of institution as been conce=tualiEed in di$ese 8ays ,5cott' :+/7-' it

geneally efes to elati$ely enduing systems of social beliefs and socially oganiEed =actices

associated 8it $aying functional aeas of societal systems ,e.g.' eligion' 8o' =olitics' la8s'

and egulations-.

6n an ecellent o$e$ie8' 5cott ,200:- =o$ided a ga=ic tat e$eals te ma1o conce=ts

and elationsi=s in$ol$ed 8it institutional teoy. As so8n in ?igue :' tee ae tee le$els

of analysis tat institutional teoy utiliEes. At te igest le$el' tee ae societal ,and global-

institutions' 8ee models and menus ae bot fomally =o=osed and infomally enacted. 3ese

=o$ide te institutional contet@ 8at is deemed =ossible' acce=table' and legitimate. 5uc

institutions sa=e' constain and facilitate stuctues and actions at lo8e le$els.

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At te net le$el 8itin 5cottGs model' tee ae te go$enance stuctues' consisting

fist of oganiEational fields' and ten of oganiEations temsel$es. An oganiEation field is

defined as tose oganiEations o=eating in te same domain ,as indicated by te similaity of te

customes se$ed- along 8it ote oganiEations tat citically influence tei =efomance ,e.g.'

fundes' contactos' =atnes-. 3e oganiEational le$el of analysis is also im=otant'

oganiEations $ay by function' siEe' stuctue' cultue' and ca=acity fo cange and tey all

influence' and ae influenced by tei oganiEational fields and institutional en$ionments.

?inally' tee ae te actos in institutional settings' 8o may be indi$iduals o gou=s

,Hatley' Butle & Benington' 2002-. ac of tese le$els influences' and is influenced by te

foces of diffusion and im=osition of institutional noms' 8ile in$enting ne8s 8ays of o=eating

and negotiating te establisment of institutional noms.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Please =lace ?igue : about ee

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

3eefoe' a citical assum=tion 8itin institutional teoy is tat all social actos ae

seeing legitimacy' ando ein$enting legitimacy noms' 8itin te institutional en$ionment

,%ot' :++0-. 3ese constaints and foces all con$ege to ceate isomo=ism' o similaity of

stuctue' tougt' and action' 8itin institutional en$ionments. ?o tis study' 8e focus on te

coss>national institutional foces 8ic migt e=lain te =ecei$ed legitimacy of co=oate

go$enance =actices 8itin a nation.

Corpor!e Go"er##$e s Le%&!&'&(% For$e

?om an institutional =es=ecti$e' legitimacy is not a commodity to be =ossessed o

ecanged but a condition eflecting cultual alignment' nomati$e su==ot' o consonance 8it

ele$ant ules o la8s ,5cott' 200:@ 4*-. As suc' co=oate go$enance =actices mediate

bet8een co=oate so$eeignty and social legitimacy ,Bonnafous>Boucle' 200*-. As


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and Iaee ,:+++- =oint out' taditional institutional teoy eamines legitimacy at t8o le$els of

analysis@ ,:- te oganiEational field le$el' and ,2- te oganiEational le$el. 6n tis study' 8e

eamine legitimacy at te societal le$el 8itin te contet of co=oate go$enance =actices.

3is etension of institutional teoy to te societal le$el is not only inteesting to

institutional scolas' but also ele$ant and useful to =actitiones. 6n ou inceasingly global

economy' nation>states ae often $ie8ed a =otential in$estment locations ,?iedman' 2000-. 6f

go$enance =actices ae $ie8ed as in geneal as legitimate o im=o$ing in legitimacy' ten

multinational ente=ises ,;%s- 8ould be moe liely to in$est in tose locations.

Altenati$ely' if go$enance =actices ae geneally $ie8ed as illegitimate o declining in

legitimacy' ten ;%s migt not in$est o migt e$en di$est o=eations. Consistent 8it

institutional teoy at tis le$el' 8e focus on te institutionally>based =actices undelying "enis

and ;cConnellGs definition of co=oate go$enance as tose mecanisms tat induce te self>

inteested contolles of a com=any to mae decisions tat maimiEe te $alue of te com=any to

its o8nes ,200)@ 2-.

6n sum' nation>states tend to acuie e=utations fo te acce=tability and legitimacy of its

co=oate go$enance =actices. 5ince neo>institutional teoy is concened 8it social

legitimiEation =ocesses and outcomes and since co=oate go$enance =actices tend to $ay

systematically by nation>state' an em=iical study of te institutional =edictos of co=oate

go$enance legitimacy seems a==o=iate.

Coer$&"e Iso'orp)&s' #d Corpor!e Go"er##$e Le%&!&'$y:

6n tei =ioneeing study' "i;aggio and Po8ell ,:+/)- identified tee ty=es of

isomo=ism 8itin institutional teoy. 3e fist ty=e tat tey identified 8as coeci$e

isomo=ism' 8ic stems fom teats to =ublic legitimacy ando go$enmental o$esigt and

monitoing. ?ollo8ing te logic of tis seminal 8o' one te ma1o influences of adeence to

effecti$e co=oate go$enance 8itin a national economy 8ill be te =esence of institutions tat


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can foce ando coece oganiEations into tans=aent and fai go$enance =actices ,Kadaelli'

2000-.

Press Freedo'. A fundamental institution 8ic can influence co=oate go$enance

=actices is te ne8s media. A fee and fai society 8itin a county is commonly tougt of as

one tat benefits fom a =lualistic =ess tat is fee and inde=endent. 3e =ess =lays a ey

institutional ole in te instumental use of no8ledge by enligtening te citiEeny and el=ing

citiEens to a$e an educated $oice. 3e moe di$ese infomation tat citiEens ecei$eD te moe

accuate social $aluations tey can mae. Ho8e$e' if an issue is distoted o muted in te =ess

due to co=oate =essue o go$enment =o=aganda' te uality of te debate suffes and a

nation cannot accuately assess its =oblems o =escibe solutions ,Jacson & 5tanfield' 2004-.

?eedom of te =ess taes into consideation not only domestic 1ounalists and media

outlets' but foeign 1ounalists as 8ell. ?o eam=le' Cina only ecently lifted long>esented

estictions on foeign media ,Anonymous' 2004-. Business>media elations ae often stained

due to lac of mutual undestanding' but also conflicting ob1ecti$es ,Kubin' :+7)-. Ho8e$e'

ne8s media oganiEations ae also businesses' and co=oations ae igly influenced by ne8s

media e=ots' bot =ositi$ely and negati$ely ,Kindo$a' Polloc & Hay8ad' 200-.

3ee ae se$eal anecdotal eam=les tougout te 8old 8ee te lac of =ess

feedom is diectly o indiectly associated 8it =oo co=oate go$enance. ?o eam=le' a fee

and fai =ess can limit ciminal acti$ity ,Anonymous' :++7- and acceleate eco$ey fom

economic cises ,Anonymous' :+++-. 5imilaly' te intenational ne8s media =ut =essue on

co=oate boads fo multinationals doing business in 5out Afica duing te days of a=ateid'

and ad a ma1o im=act on co=oate bea$io ,Anonymous' :+/*-. 6n 5out


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im=isonment and mude of 1ounalists a$e limited =ess feedom and citiEens and businesses

a$e suffeed accodingly ,Peins' 200:-.

#nfotunately' tee ae no no8n systematic studies of te elationsi= bet8een feedom

of te =ess and co=oate go$enance effecti$eness. Ho8e$e' tee ae some closely elated

studies 8ic suggest a =ositi$e elationsi= bet8een =ess feedom and go$enance =actices.

?o eam=le' PantEalis' 5tangeland and 3utle ,2000- documented a =ositi$e elationsi=

bet8een =ess feedom and co=oate maet etuns in )) counties duing te =eiod of :+74>

:++*. Also' eseac e=eatedly so8s tat feedom of te =ess is negati$ely elated to te le$el

of national cou=tion ,Co8duy' 2004D 9edeman' 9oayEa & 5oaes' 200*-' =esumably a

facto at least =atially influenced by co=oate go$enance acti$ities.

6n sum' a fee =ess can unco$e and infom a nation of unetical and illegal acts' as 8ell

as tum=et eem=las of co=oate go$enance. Also' fee =ess im=oses coeci$e =essues on

all of a nationGs citiEens' es=ecially its elites' to conduct business in a fee and fai 8ay. #sing

te logic of e=edience ,5cott' 200:-' co=oations may become isomo=ic to te mediaGs

=essues and e=ectations. 3is liteatue and logic suggest te follo8ing y=otesis@

Hypo!)es&s *: T)e e+!e#! o, press ,reedo' w&!) #!&o#- e$o#o'y &s

pos&!&"e-y sso$&!ed w&!) !)e per$e&"ed -e%&!&'$y o, $orpor!e %o"er##$e

pr$!&$es $o.#!ry/

De'o$r!&$ A$$o.#!0&-&!y. 3ee ae ote national institutions 8ic migt

coeci$ely influence co=oate go$enance =actices' o8e$e. !ne of te =imay social

institutions tat foces indi$iduals and oganiEations to confom to societal noms is a feely>

elected and tans=aent go$enment. 6n some nations' te go$enment is igly accountable fo

te societyGs 8ell>being and is =unised 8en it fails and e8aded 8en it succeeds. 6n ote

nations' te go$enment is not eld accountable fo its failues o successes. !ne of te =imay

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mecanisms by 8ic a go$enment is eld accountable is toug a fee and fai democatic

election =ocess ,national studies a$e found tat te etent to 8ic te ule of la8 is obse$ed 8itin

nation' te bigge its ca=ital maets ,9aPota' 9o=eE>de>5ilanes' 5leife & (isny' :++7-' te

faste its economic go8t is ,igoian & ;atineE' 200:-' and te smalle its undegound

economy ,Bo$i' 200)-. 3o te etent tat obse$ance of te ule of la8 is =ositi$ely associated

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8it democatic accountability and good co=oate go$enance is associated 8it =oducti$e and

euitable economies' tis suggests tat democatic accountability may be =ositi$ely elated to

co=oate go$enance =actices.

Anecdotes fom a $aiety of nations illustate tis elationsi= moe diectly. 6n a

=ublication no8n as te !li$encia Ke=ot' a stong lin is made bet8een go$enmental

accountability and co=oate go$enance. Building on 5=anis notions of loyalty' due diligence'

and tans=aency' an agument is made fo e8ading go$enments tat monito and o$esee

co=oations =o=ely' and =unising tose 8o do not by electing otes 8o 8ill ,5ison' 2000-.

5imilaly' Adian Cadbuy ,:+++- as encouaged Anglo>Ameican go$enments to be eld moe

accountable fo tei actions ,o in>action- in dealing 8it co=oate go$enance =actices. 6n

addition' ;attli and Bute ,200*- ecently agued tat te #.5. go$enment as abdicated

es=onsibility to o$esee co=oate go$enance =actices by delegating too muc of its autoity

to =i$ate>secto agents. All tee aticles suggest tat te democatic =ocess is te ey to

olding te go$enment accountable 8ic olds business accountable. 6n sum' tis liteatue

and logic suggest te follo8ing y=otesis about democatic accountability@

Hypo!)es&s 1: T)e e+!e#! o, de'o$r!&$ $$o.#!0&-&!y w&!) #!&o#- e$o#o'y

&s pos&!&"e-y sso$&!ed w&!) !)e per$e&"ed -e%&!&'$y o, $orpor!e %o"er##$e

pr$!&$es $o.#!ry/

M&'e!&$ Iso'orp)&s' #d Corpor!e Go"er##$e Le%&!&'$y:

3e second fom of isomo=ism identified by "i;aggio and Po8ell ,:+/)- 8as called

mimetic isomo=ism' 8ic efes to te tendency of social actos to imitate ote social

actos 8ic ae $ie8ed as successful and legitimate. 6mitation among membes of a social

system can occu fo com=etiti$e easons ,5cott' 200:-. Com=etiti$e imitation =essues eist

8en fims lean fom eac ote o8 to o=eate moe efficiently ando effecti$ely o 8en tey

mimic eac ote so as to minimiEe te is of losing a custome o a souce of su==ly ,ule'

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uillen & ;ac=eson' 2002-. !ne aea 8ee imitation migt tae =lace is in te aea of

co=oate go$enance =actices' es=ecially 8it es=ect to situations 8ee legitimation =essues

ae =aamount ,Aguilea & Cue$o>CaEua' 2004-.

I'por! Co'pe!&!&o#. Pe$ious studies a$e so8n tat im=ot com=etition geneally

8eeds out inefficient domestic fims' fostes global best =actices' and often stengtens

domestic maets. ?o eam=le' ?aell and Iainulbai ,2004- found tat lac of im=ot

com=etition in 6ndia allo8ed inefficient domestic fims to su$i$e. 6n %e8 Iealand' inceasing

im=ot com=etition 8as found to incease "P and im=o$e 8ealt distibution 8itin tat

nation ,Picfod' :+/7-. ule' uillen and ;ac=eson ,2002- found tat foeign im=ots beed

com=etiti$e imitation in te fom of 65! +000 cetification in tei coss>national com=aati$e

study. 6n de$elo=ing economies' it as been so8n tat im=ot com=etition is =aticulaly

beneficial if te foeign com=etition is in te ig>tecnology aea ,Connolly' 200)-. And

Wasno8 ,200:- agued tat im=ot com=etition foces nations to s=ecialiEe and ediect

esouces to 8ee te nation is most globally com=etiti$e.

Wen domestic fims ae not sielded fom foeign im=ots toug tade estictions o

uneasonable taiffs' tey ae foced to become moe com=etiti$e in tei domestic maets. !ne

of te 8ays in 8ic a fim ando a nation may become moe globally com=etiti$e is toug

im=o$ed co=oate go$enance ,Aguilea & Cue$o>CaEua' 2004-. 6n sum' te geate te

im=ot com=etition' te geate te =essues to imitate successful fims 8o migt be =acticing

bette co=oate go$enance. 3is suggests te follo8ing y=otesis@

Hypo!)es&s 2: T)e e+!e#! o, &'por! $o'pe!&!&o# #!&o#- e$o#o'y &s

pos&!&"e-y sso$&!ed w&!) !)e per$e&"ed -e%&!&'$y o, $orpor!e %o"er##$e

pr$!&$es $o.#!ry/

::


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I#!er#!&o#- No#3%o"er#'e#!- Or%#&(!&o#s. A second fom of com=etiti$e

imitation comes fom institutional =essues bougt to bea by intenational non>go$enmental

oganiEations ,6%!s-. 3eegan ,200)- ecently agued tat 6%!s addess te failues of

national institutions to guide multi>national ente=ises ,;%s-. 5e goes on to ague tat

6%!s ae im=otant tansnational institutional foces tat encouage legitimate ;% and ost

county bea$io. Kecent eseac suggests tat 6%!s influence co=oate go$enance

=actices bot diectly and indiectly ,3eegen' "o & (acani' 2004-.

Witin te contet of national economies' fomal institutional noms ae =o$ided by

6%!s to =omote global tade and ad1udicate =oblems 8en tey aise. Pe$ious eseac as

so8n tat te moe integated a county is 8it te global economy' te lo8e te le$els of

cou=tion ,5andoltE & ay' 200)-. 3is im=lies tat membesi= in global tading

oganiEations e=oses counties not only to 1ust global goods and ca=ital' but also ideas'

infomation and intenational noms. 5uc coss>national inteactions may alte tose =eo=le and

tei institutions tat =atici=ate in tem.

!ne of te badges of success in ou ne8 global economy is acti$e in$ol$ement in te

global economy and membesi= in te Wold 3ade !ganiEation ,W3!-. 3e W3! is te only

intenational non>go$enmental oganiEation dealing 8it te ules of tade bet8een nations. At

its eat ae te W3! ageements' negotiated and signed by many of te 8oldGs tading nations

and atified in tei es=ecti$e go$enments. 3e cental goal is to libealiEe tade toug fai

and fee ecange of goods and se$ices. Headuateed in ene$a' 58itEeland' te W3!

cuently includes :4+ membe nations ,as of "ecembe ::' 200*-. 6ts =edecesso' te eneal

Ageement on 3aiffs and 3ade ,A33-' 8as fomed afte Wold Wa 66 in :+47. Almost all

A33 nations 1oined te W3! 8en it 8as fomally ceated on Januay :' :++* ,Wold 3ade

!ganiEation' 200-.

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3e functions of A33W3! ae to ,:- administe W3! tade ageements' ,2- =o$ide a

foum fo tade negotiations' ,)- andle tade dis=utes' ,4- monito national tade =olicies' ,*-

=o$ide tecnical assistance fo de$elo=ing counties' and ,- coo=eate 8it ote intenational

oganiEations. As suc' te W3! ceates' monitos' and se$es as a foum fo callenging unfai

tading =actices.

Wile co=oate go$enance =actices and noms ae not fomally a euiement fo

1oining te W3!' tee is an infomal nom tat encouages tans=aency and global best

=actices 8itin te W3!. ?o eam=le' te W3! 8as instumental in callenging co=oate

go$enance =actices 8itin Cina =io to its admission ,Anonymous' 2000-. As a esult' it is

agued tat W3! membesi= 8ill acceleate te emegence of a geatly di$esified o8nesi=

stuctue in Cina and enanced go$enance ,9iu & Woo' 200:-. 5imilaly' te W3! is

influencing bot =ublic and =i$ate go$enance =actices egading te global food system

,Baling' 9ang & Caae' 2002- and in aicaft sectos ,9a8ton & ;cuie' 200:-. As suc' te

longe tat a nation is a membe of te W3! ando A33' te moe liely tat it as imitated'

o been foced to imitate successful tading nations ando multinational fims 8ee co=oate

go$enance confoms to intenational noms and standads. ;oe fomally' tis elationsi= can

be s=ecified as follo8s@

Hypo!)es&s 4: T)e #.'0er o, yers !)! #!&o#- e$o#o'y &s 'e'0er o, !)e

5TO &s pos&!&"e-y sso$&!ed w&!) !)e per$e&"ed -e%&!&'$y o, $orpor!e

%o"er##$e pr$!&$es $o.#!ry/

Nor'!&"e Iso'orp)&s' #d Corpor!e Go"er##$e Le%&!&'$y:

3e tid and final institutional mecanism 8ic migt e=lain co=oati$e go$enance

effecti$eness is no8n as nomati$e isomo=ism ,"imaggio & Po8ell' :+/)D uillen' :++/-.

?omal taining and =ofessionaliEation ceate an institutional en$ionment toug mutually

ageed u=on noms and outines ,;eye & Ko8an' :+77-. ;embes of an occu=ational

:)


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community sae a common undestanding and no8ledge base 8ic migt encouage

=actitiones to confom to =ofessional noms and standads of bea$io ,ule & associates'

2002-.

E!)#&$ #d Re-&%&o.s Te#s&o#s. Pe$ious teoy as suggested tat 8en eligious and

etnic tensions ae minimiEed' ten =ofessional noms dominate in business =actices.

Ho8e$e' 8en eligious and etnic tensions ae =aamount' =ofessional noms ae sus=ended

in business =actices. ?o eam=le' Heiot and 5cott>Jacson ,2002- asseted tat in some

situations' eligious' etnic' and s=ecial issues dictate tat =ofessional noms be =ut aside in

ode to ono tese ote social identities' =aticulaly in te confusing and fluid 8old of global

maets. ;oe ecently' Patt' Kocmann and


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multi>cultual city of Jeusalem mae effecti$e go$enance $ey difficult ,A=ateid

5out Afica clealy influence co=oate go$enance =actices today. And tese elationsi=s ae

not limited to de$elo=ing nations. ?o eam=le' 3omas ,2004- ecently agued tat lingeing

etnic and acial tensions in te #nited


16/38

6n one of te fe8 systematic em=iical studies of te im=act of social factionaliEation on

a nation>state'


17/38

Vr&0-es 8 Mes.res

Depe#de#! Vr&0-e. 6n tis study' ou de=endent $aiable 8as te =ecei$ed legitimacy

of co=oate go$enance =actices fo a =aticula county in a =aticula yea. We obtained te

aggegate ating of co=oate go$enance effecti$eness fom te Wold Com=etiti$eness Ke=ot'

=ublised annually by 6;". #sing multi=le e=ets bot inside and outside of te nation' 6;"

eac yea ass go$enance e=ets to ate te le$el of co=oate go$enance effecti$eness fo

multi=le nations. 3ese atings ae ten a$eaged. ?o eam=le' in :++* 6;" obtained )'2+2

su$eys com=leted by cief eecuti$es and economic leades tougout te 8old. 3ese data

8ee $alidated by aci$al ecods =o$ided by :+ intenational agencies' and 4* national

agencies' 8en te data ae a$ailable.

?o te co=oate go$enance effecti$eness item' multi=le es=ondents indicated in an

ele$en>=oint 9iet scale anging fom 0 to :0 8it te follo8ing ancos@ ,9o8- Co=oate

boads do not =e$ent im=o=e =actices in co=oate affaisD and ,Hig- Co=oate boads ae

safeguads fo =o=e =actices in co=oations. We collected aci$al data on 4 nations in

:++7' and tat ge8 to *: nations at te end of ou seies 8ic culminated in 200*.

3o fute $alidate tis measue of co=oate go$enance effecti$eness' 8e obtained

aci$al data fom fou additional souces tat measue simila conce=ts. ?ist' teRule of Law

8as obtained fom te Wold Ban and is one of tei go$enance indicatos fo te yeas :++'

:++/' 2000' 2002' and 2004. 3is measue 8as significantly coelated 8it ou measue of

co=oate go$enance effecti$eness , L .*+' = M .00:-. 6n addition' 8e used tee uniue

measues listed in Wu ,200*- tat measue co=oate go$enance in s=ecific yeas. 3e fist is a

measue de$elo=ed by PiceWateouseCoo=e tat eflects te accountingco=oate go$enance

o=acity of 2 counties in ou study fo te yea 200:. 3is measue 8as significantly coelated

8it co=oate go$enance effecti$eness , L .*2' = M .0:-.

:7


18/38

3e second measue 8as constucted by ;c)0 ae ated as fee' tose 8it atings of ):>

0 ae ated as =atly fee' and tose 8it atings of :>:00 ae ated as not fee. 3o assist in

inte=etation' tis inde 8as e$esed scoed so tat ige $alues indicated ige =ess

feedoms' simila to Co8duy ,2004-.

5imila to Busse and Hefee ,200-' 8e utiliEed data =o$ided by te PK5 gou= ,200-

to o=eationaliEe ouDemocratic Accountabilitymeasue. 3e PK5 ou= =ublises

countydata.com' a subsci=tion>based data se$ice 8ic =o$ides com=aati$e annual atings of

moe tan :40 nations stating in :+/4 and ending in 200.

3e PK5 ou=Gs =olitical is atings consists of se$eal com=onents' including te

Democratic Accountability measue ee' co$eing bot =olitical and social attibutes 8ee eac

:/


19/38

com=onent is assigned a maimum numeical $alue ,is =oints-' 8it te igest numbe of

=oints indicating te lo8est =otential is fo tat com=onent and te lo8est numbe ,0-

indicating te igest =otential is. !te com=onents of te =olitical ating system include

o$enment 5tability' 5ocioeconomic Conditions' 6n$estment Pofile' 6ntenal Conflict' tenal

Conflict' Cou=tion' ;ilitay in Politics' 9a8 and !de' "emocatic Accountability' and

Bueaucacy Quality.

3e PK5 staff assigns is =oints fo eac indi$idual is com=onent using a $aiety of

county e=ets ,b' Ha$ey & (isanta' :++-. ?o eam=le' teDemocratic Accountability

atings ange fom 0 to ' 8it ige ating indicating ige le$els of accountability' and $ice

$esa. 3e =oints in tis com=onent ae assigned on te basis of te ty=e of go$enance =esent

in te county in uestion' anging fom diffeent degees of democacy to autacy. !$eall' te

Democratic Accountabilitymeasues 8ete tee ae fee and fai elections and it sees to

descibe te degee of go$enment es=onsi$eness to its =eo=le.

3eImport Competitionmeasue 8as obtained fom te Wold Ban. 5imila to Ades

and di 3ella ,:++7-' it 8as com=uted as te $alue of im=oted goods and se$ices sold as a

=o=otion of o$eall goss domestic =oduct. We obtained tis data fom on>line data su==lied

by te Wold Ban ,200-.

3e W! Members"ipmeasue 8as obtained fom te Wold 3ade !ganiEationsG

,200- 8ebsite. 3is 8ebsite lists all W3! membes as 8ell as te yea in 8ic tey enteed

tis oganiEation. Cuently' :4+ nations ae membes of te W3!' but tee is consideable

$aiation in te lengt of time tat tey a$e been a membe.

3eReligious ensionsand#t"nic ensionsmeasues ,anging fom 0 to - 8ee

obtained fom te PK5 ou= ,200-' simila to Busse and Hefee ,200-. tnic tensions ae

defined as te degee of social conflict 8itin a nation attibutable to acial' national o language

di$isions' 8it ige $alues indicating ige le$els of etnic tension. Keligious tensions ae

:+


20/38

defined as te degee of social conflict 8itin a nation aising fom te domination of society

ando go$enment by a single eligious gou=' o a desie to dominate' in a 8ay tat e=laces

ci$il la8 by eligious la8. !nce again' ige $alues e=esent ige le$els of eligious

tensions.

Co#!ro- Vr&0-e. We contolled fo !#CD Members"ipbecause =e$ious eseac

suggests tat economically de$elo=ed nations tend to focus on globally efficient best =actices

,"etomasi' 2002D Jeso$e & yea =eiod fom :++ F

200*. 3e data ae unbalanced in tat all $aiables ae not e=oted fo all counties fo eac

yea. 3eefoe' 8e used te 40: obse$ations tat 8ee a$ailable fo te *: counties acoss tis

time =eiod. As discussed by sectional

analyses =esent com=le =oblems tat must be addessed. 3e =inci=le =oblem is associated

8it eteoscedasticity' 8ic must be accounted fo in te estimation metod.

We used te genealiEed least suaes ,andom effects- model in (ie8s *.: to conduct

ou analysis. 6n coosing bet8een te fied and andom effects modeling a==oaces 8e

consideed te caacteistics of ou inde=endent $aiables. 5ince a numbe of tese $aiables

20


21/38

$aied little o$e time' fo eam=le membesi= in !C"' 8e consideed te fied modeling

a==oac to be ina==o=iate. 6n addition' 8e an a Hausman s=ecification test to detemine if

te andom model is a==o=iate fo tese data. 6f a significant diffeence is obse$ed bet8een

te andom and fied effects estimates' te andom effects model cannot be used ,Wooldidge'

2002-. !u test did not find a significant diffeence bet8een te estimates fom te t8o

modeling tecniues ,O2L +.4) 8it 7 degees of feedom' = M .22-. 3eefoe te esults

e=oted ae fom te andom effects model.

3e (ie8s econometic =acage also su==ots tests of te obustness of te model.

#sing altenate coefficient co$aiance metods demonstated te obustness of te coefficient

estimates 8itin ou model. 6n addition' altenate 8eigting o=tions 8ee used fo te andom

effects model 8it te same obust esults. 3e coefficient estimates and tei associated t>

statistics did not cange significantly in any of te altenati$e uns.

RESULTS

3e desci=ti$e statistics' including te =ooled coelation mati' ae dis=layed in 3able

:. 3e $aiables in te table eflect te one>yea lag bet8een te inde=endent $aiables and te

de=endent $aiable.

> > > > > > > > > > > > > > > > > > > > > > > > >

Place 3able : about ee

> > > > > > > > > > > > > > > > > > > > > > > > >

3e esults of te =ooled' coss>section' time seies model ae dis=layed in 3able 2. Wit

es=ect to te fist y=otesis' 8ic e=ected a =ositi$e elationsi= bet8een =ess feedom and

co=oate go$enment effecti$eness' te esults indicate su==ot ,t L :.+)' = M .0*-. As te =ess'

bot domestic and foeign' is gi$en moe o=en access to te =o=ulace te effect a==eas to be a

geate degee of co=oate go$enance 8itin te county' as y=otesiEed.

2:


22/38

> > > > > > > > > > > > > > > > > > > > > > > > >

Place 3able 2 about ee

> > > > > > > > > > > > > > > > > > > > > > > > >

Hy=otesis t8o is also 8ell su==oted by ou data 8it te finding of a =ositi$e'

significant elationsi= ,t L 2./*' = M .0:- bet8een democatic accountability and co=oate

go$enance effecti$eness. 6n nations 8ee te go$enment is eld accountable by its citiEens'

te degee of co=oate go$enance a==eas to be ele$ated. 3eefoe' bot manifestations of

coeci$e isomo=ism in tis study 8ee found to influence co=oate go$enance =actices at te

county le$el.

Hy=oteses tee and fou e=esented te elationsi=s bet8een te t8o mimetic

isomo=ism measues and co=oate go$enance effecti$eness. 3e findings 8it es=ect to

y=otesis tee' tat ige le$els of im=ot com=etition 8ould be =ositi$ely elated to

co=oate go$enance effecti$eness' 8ee su==oted by ou data ,t L 2.*' = M .0:-. As

y=otesiEed' te =esence of ige le$els of im=ot com=etition' in counties a==eas to

acceleate com=etiti$e imitation in te fom of enanced co=oate go$enance.

6n addition' te yeas of membesi= in te W3! 8as =ositi$ely elated to co=oate

go$enance effecti$eness ,t L ).*7' = M .00:-. 3ese esults =o$ide stong su==ot fo ou fout

y=otesis. $idently' =essues fo imitation also aise fom 1oining te 8old tade

oganiEations and tat manifests itself in im=o$ed go$enance =actices. An im=otant

im=lication of tis finding is tat fute lo8eing of tade baies toug multilateal fee tade

negotiations in te contet of te W3! may enance co=oate go$enance effecti$eness as te

ules of te game become moe tans=aent to all economic agents.

Hy=oteses fi$e and si ae associated 8it te le$el of social coesion tat may allo8

nomati$e isomo=ism =essues to influence co=oate go$enance effecti$eness. 3e esults

8it es=ect to te fift y=otesis' tat a ige le$el of etnic tensions 8ill be negati$ely

22


23/38

elated to co=oate go$enance effecti$eness' 8ee not statistically significant. 3eefoe'

y=otesis fi$e is not su==oted by ou data. Ho8e$e' 8e did find a significant elationsi=

bet8een te etent of eligious tensions and co=oate go$enance effecti$eness ,t L >).2' = M .

00:-. 3us y=otesis si is stongly su==oted.

DISCUSSION 8 CONCLUSIONS

3e =u=ose of tis study 8as to em=iically e=loe =otential antecedents of co=oate

go$enance effecti$eness in a boad ange of nations acoss a ten>yea =eiod of study fom :++

until 200*. #sing com=aati$e neo>institutional teoy' fi$e of ou si =edictos of te

=ecei$ed legitimacy of co=oate go$enance =actices 8ee su==oted by ou data. 6n addition'

all tee of te isomo=ic =essues el=ed to =edict and e=lain te le$el of co=oate

go$enance legitimacy 8itin a nation. 3e only =edicto tat 8as not su==oted by ou data

8as te y=otesiEed elationsi= bet8een te degee of national etnic tensions and go$enance

legitimacy. i$en te elati$ely ig inte>coelation bet8een eligious and etnic tensions ,

L .*4' = M .0:-' it could be tat tese t8o $aiables sim=ly descibe te same social =enomena

and dynamics.

%otably' =e$ious neo>institutional studies a$e been citiciEed fo focusing on only one

o t8o isomo=ic =essues ,;iEuci & ?ein' :+++-. !u study em=asiEes te $alue of

studying all tee =essues simultaneously. 6t a==eas tat all tee isomo=ic =essues

influence co=oate go$enance =actices and its =ecei$ed legitimacy tougout te 8old.

!$eall' tis study maes at least tee significant contibutions to te oganiEational

science liteatue. ?ist' 8e efine and etend neo>institutional teoy at te nation>state le$el of

analysis to bette undestand co=oate go$enance legitimacy by using =anel estimation

tecniues on maco>institutional data. 5uc analyses may ca=tue im=otant economy>8ide

deteminants of co=oate go$enance mecanisms tat may be obscued by mico studies. As

teoiEed by 5cott ,200:-' foces at te national le$el ae te =inci=le influences of co=oate

2)


24/38

go$enance stuctues at te oganiEation le$el. ?utemoe' ou study as identified te

significant influence of ey factos tat ae contolled at te national le$el. %ations tat ae

concened about attacting and e8ading in$estment in bot infastuctue and business in tei

locale need to be a8ae of te im=otance of tese factos. 3o ou no8ledge' tis is one of te

fist scolaly studies to use a neo>institutional =es=ecti$e fo descibing and e=laining te

=ecei$ed legitimacy of co=oate go$enance =actices at te maco le$el' and te insigts ae

uite obust.

5econd' 8e efine and etend te go$enance liteatue to conside te institutional

contet in 8ic all business is tansacted. At te maco le$el' "a$is ,200*- stated tat te

constellations of go$enment institutional foces $ay 8idely aound te 8old. 3e coeci$e

isomo=ism mecanisms contained in ou study include =ess feedom and democatic

accountability' bot of 8ic 8ee significantly elated to co=oate go$enance effecti$eness.

Hige le$els of eac of tese $aiables a==ea to enance te tans=aency and o=enness

necessay to ensue sufficient le$els of go$enance tat 8ould allo8 fo te infusion of needed

ca=ital into te nationGs business en$ionment.

9ie8ise' te mimetic isomo=ism mecanisms' im=ots =enetation and membesi= in

te W3!' 8ee found to be instumental in inceasing co=oate go$enance effecti$eness. 3is

finding su==ots aguments made by Ka1an and Iingales ,200)- in tat =olitics influences

national co=oate go$enance systems. 3ese scolas ague tat inceasing im=ots esults in

additional =ofitability =essues on domestic incumbents' euiing tem to see additional

ca=ital. 6n ode to attact tis ca=ital te tans=aency and o=enness of te go$enance systems

8itin te county must be sufficient to satisfy te in$estos. ;embesi= in te W3! 8ill also

=o$ide needed assuances to te =otential in$estos and o==otunities to imitate successful

=edecessos.

24


25/38

3id' 8e offe some insigts to co=oate staeoldes seeing to enance te =ecei$ed

legitimacy of co=oate go$enance 8itin tei fim ando industy. 6n counties 8it limited

feedom of =ess and democatic accountability' =olicymaes need to =ass la8s' =omoting fee

=ess and elections and also maing =ublic officials moe es=onsible fo tei actions. 3e

finding tat ig im=ot com=etition im=o$es co=oate go$enance suggests tat =olicymaes

need to a$oid =otectionist measues suc as state aid' im=ot subsidies and ote foms of

go$enment inte$ention in te economy. Wold leades need to encouage fute W3!

membesi= toug multilateal fee tade oganiEations and a$oid actions tat 8ould escalate

eligious tensions.

"es=ite tese ate obust esults' ou conclusions must be inte=eted 8it cae. ?o

eam=le' a elati$ely small amount of $aiance 8as e=lained fo co=oate go$enance

legitimacy ,ad1usted K2L .:-. Clealy' tee migt be some ote isomo=ic =essues tat

moe =asimoniously e=lain and =edict $aiance in te =ecei$ed legitimacy of co=oate

go$enance =actices aound te 8old. Also' ou de=endent $aiable 8as an aggegated

=ece=tion of all go$enance =actices 8itin a nation in any gi$en yea. Clealy' tis is a cude

=oy tat fails to ca=tue $aiance 8itin a nation. Conseuently' tese esults sould be tested

8it ote measues of co=oate go$enance =actices 8itin and bet8een national contets.

?inally' 8e assume a one>yea lag effect 8it ou =edicto $aiables. !b$iously' te lagged

effect migt be sote o longe tan tis. 3eefoe' futue eseac sould e=loe multi=le

=eiod lag effects' and =ea=s e$en in$estigate 8en ote teoies may offe insigt as to 8at

te a==o=iate lag effect migt be.

%oneteless' tis study offes =o8eful ne8 insigts into te com=aati$e co=oate

go$enance liteatue and offes im=otant =olicy im=lications fo =ublic officials using 5cottGs

,200:- teoy about societyGs institutional models and menus influence te go$enance stuctue

of oganiEational fields toug te diffusion and im=osition =ocess. #sing lagged =edicto

2*


26/38

$aiables' 8e =o$ide a longitudinal eamination of te isomo=ic =essues eeting an

influence on 8at some ae aguing is te foundation fo te global economy > co=oate

go$enance legitimacy. We encouage ote scolas and =olicy maes to conside institutional

contet fo futue eseac on co=oate go$enance.

2


27/38

FIGURE *

CONCEPTUAL MODEL OF INSTITUTIONAL THEORY 8 INSTITUTIONAL FORCES

5ouce@ 5cott ,200:-

27

5ocietal 6nstitutions

;odels and ;enus

6nstitutional o$enance 5tuctues

!ganiEational ?ields

!ganiEations

"iffusion

6m=osition

nn

6n$ention

%egotiation

Actos

6nte=etation6nno$ation

o

5ocialiEation

5anctions

"iffusion

6m=osition 6n$ention

%egotiation

"iffusion

6m=osition

6n$ention

%egotiation


28/38

TABLE *

DESCRIPTIVE STATISTICS FOR POOLED DATA

9N 6* $o.#!r&es; 4tailed test


29/38

TABLE 1

REGRESSION ANALYSIS ON CORPORATE GOVERNANCE LEGITIMACY

9N 6* $o.#!r&es; 40.0: 0.:: >0.)/

Constant 4.:+* 0.)42 :2.27

Ad1usted K2 0.:

?>$alue ::.*4

= M .0*' one>tailed test= M .0:' one>tailed test

= M .00:' one>tailed test


30/38

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