Cross‐National Governance Research: A Systematic Review and Assessment

• Published date: 01 May 2016
• Author: Henrique Castro Martins,Eduardo Schiehll
• Date: 01 May 2016
• DOI: http://doi.org/10.1111/corg.12158

Cross-National Governance Research: A

Systematic Review and Assessment

Eduardo Schiehll*andHenriqueCastroMartins

ABSTRACT

Manuscript Type: Review

Research Question/Issue: Using a systematic literature review approach, we survey 192 cross-national comparative studies

published in 23 scholarly journals in the fields of accounting, economics, finance, and management for the period 2003 to

2014. The purpose is to synthesize and appraise the extant empirical research on the interplay between country- and firm-

level governance mechanisms and the effects on firm outcomes. Particular focus is placed on studies that examine firm eco-

nomic performance.

Research Findings/Results: We identify and distinguish between two groups of cross-national governance studies. The first

type compares macro, country-level outcomes and the second compares three different firm-level outcomes: economic perfor-

mance, governancemechanisms, and strategic decisions. We compare the theoretical frameworksused and further analyze the

country-levelfactors and firm-level governanceattributes that have been combined to investigatetheir interplay and the effects

on firm outcomes. We find substantial variation in the use and measurement of country-level factors as well as a variety of

causal formsused to explain the combined effects of country-and firm-level governancemechanisms. This wide variabilitypre-

cludes comparison, and consequently prevents identifying consistent patterns of influence between country-level governance

factors and firm-level governance mechanismsand/or performance. We identify research gaps andprovide fruitful directions

for future research on this topic.

Theoretical Implications: The cross-national governance research has been guided mainly by an economic perspective focus-

ing on international differences in the effectiveness of specific governance mechanisms. Few comparative studies have inte-

grated an institutional perspective or examined the external forces that drive the diffusion and use of specific governance

mechanisms. Suchintegrative framework would improve the understanding of cross-national differences in the salient dimen-

sions of country-level governance factors and how they mediate the effectiveness of firm-levelgovernance mechanisms.

Practitioner Implications: Our results reveal that firm- and country-le vel governance mechanisms h ave been interacted and

combined, either to address various agency problems or to compensate for a weak national environment. This callsfor regula-

tors and investors to consider national governance factors when assessing firm-level governance practices.

Keywords: Corporate Governance, Cross-National Corporate Governance, Systematic Review, Firm-Level Governance

Mechanisms, Country-Level Governance Factors

INTRODUCTION

The corporate governance literature provides extensive in-

sight into the associations between firm-level governance

mechanisms and a number of firm outcomes. Nevertheless,

the reviews by Brown, Beekes, and Verhoeven (2011), Denis

and McConnell (2003), and Durisin and Puzone (2009) indi-

cate that national governance characteristics and how they

impact the effectiveness of firm-levelgovernance mechanisms

have received little attention. Another research stream views

corporate governance as primarily the means by which a na-

tion channels corporate power for the good of society, so that

wealth is created efficiently and distributed fairly within a

nationaleconomy (e.g., Jackson & Deeg,2008; Judge, Douglas,

& Kutan, 2009). This perspective has motivatedcross-national

governance research, which attempts to explain firm out-

comes mainly as under the influence of economic develop-

ment and national-level governance forces external to the

firm (e.g., Millar, Eldomiaty, Choi, & Hilton, 2005; Weimer &

Pape, 1999). At the same time, the interplay between

country- and firm-level governance mechanisms tends to be

disregarded.

Some governance scholars argue that these two promising

research streams would gain by converging and informing

each other, thereby advancing our understanding of the effec-

tiveness of corporate governance practices (e.g., Aguilera,

Desender, Bednar, & Lee, 2015; Filatotchev, Jackson, &

Nakajima, 2013; Judge, 2009; Judge, Filatotchev, & Aguilera,

2010). This argument finds support in North’s (1990)

*Address for correspondence: Eduardo Schiehll, HEC-Montréal, 3000, Chemin de la

Côte-Sainte-Catherine, Bureau5369, Montréal, QC H3T 2A7, Canada.E-mail: eduardo.

schiehll@hec.ca

© 2016 JohnWiley & Sons Ltd

doi:10.1111/corg.12158

181

Corporate Governance: An International Review, 2016, 24(3):181–199

institutional theory, whereby a country’s informal and formal

institutions provide guidelines for individuals and organiza-

tions to deal with uncertainty, decode the environment, and

take appropriate actions. Accordingly, Aoki and Jackson

(2008: 2) suggest that “There are various patterns of linkage

between corporate governance (CG) mechanisms (institu-

tions) and organizational architecture (OA) as a non-market

information system, the workings and implications of which

cannot be adequately understood only in terms of the stan-

dard framework.”

1

The main motivation for this systematic

literature review is the need to identify cross-national varia-

tions in the salient dimensions of country-level governance

forces, and howthese forces impact the effectiveness of gover-

nance solutions at the firm level.

Our aim is to contribute to the discussion by synthesizing

the extant empirical cross-national corporate governance re-

search on the interplay between country- and firm-level gov-

ernance mechanisms and the effects on firm outcomes. Our

study departsfrom previous comprehensivereviews on inter-

national governance research (Brown et al., 2011; Denis &

McConnell, 2003; Durisin & Puzone, 2009) in two respects.

First, we review only studies that compare governance mech-

anisms across several countries. Second, we focus on empiri-

cal evidence of the interactive or combinatory effects of firm-

and country-levelgovernance mechanisms.Thus, using a sys-

tematic literature review methodology, we examine 192 stud-

ies published in 23 scholarly journals in the fields of

accounting, economics, finance, and management for t he pe-

riod 2003 to 2014.Our overall objective is to synthesizeand or-

ganize the cross-national governance research to date. We

present our review under five general headings: (1) What are

the predominant theoretical frameworks? (2) What outcomes

have been investigated? (3) What country-level factors have

been investigated as independent variables? (4) What

country- and firm-level governance mechanisms have been

combined to explain firm performance? (5) What country-

level governance factors have been used to explain firm-level

governance mechanisms?

We identify and distinguish between two groups of cross-

national governance studies. The first compares macro,

country-level outcomes and the second compares three

types of firm-level outcomes: governance mechanisms, stra-

tegic decisions, and performance. We compare the theoreti-

cal frameworks adopted and the country-level factors used

to proxy for external governance forces. We demonstrate

that the cross-national governance research has been largely

informed by La Porta, Lopez-de-Silanes, Shleifer, and

Vish ny’s(1998)(hereafterLLSV)classification of a country’s

degree of investor protection. Although there is consistent

evidence that investor protection has a fundamental effect

on financial market development and firm ownership struc-

ture, its effect on the use of other firm-level governance

mechanisms or their effectiveness is less convincing. Our re-

sults also reveal that, up to now, the cross-national gover-

nance research has examined only a small number of

informal institutions. We further analyze the country-level

factors and firm-level governance attributes that have been

combined to investigate their interplay and the effects on

firm outcomes. We find substantial variations in the use

and measurement of country-level factors, as well as differ-

ences in the causal forms used to explain the combined

effects of country- and firm-level governance mechanisms.

This wide variability precludes comparison, and conse-

quently prevents the identification of consistent patterns in

how country-level governance factors influence firm gover-

nance structure and/or performance. We identify several re-

search gaps and provide fruitful directions for future

research.

This article is structured as follows. The next section sum-

marizes the ongoing debate in the cross-national governance

research. We highlight the theoretical underpinnings and

point out certainchallenges in integrating an institutional per-

spective to examine the interplay between firm- and country-

level governance mechanisms and the effects on firm out-

comes. We then describe the systematic literature review

methodology, including journal selection, article selection,

and content analysis. In the third section we present and dis-

cuss our findings on the dependent variables and national

governance factors that have been examined as well as the

main firm- and country-level mechanisms that have been

combined to explain firm economic performance. We end

with a conclusion and directions for future research.

THE ONGOING DEBATE IN THE

CROSS-NATIONAL GOVERNANCE

RESEARCH

Corporate governance can be viewed as bundles of interre-

lated or intertwinedcountry- and firm-level forcesthat under-

lie the structures and processes involved in the relationships

between a firm’s management and its stakeholders, who are

most commonly shareholders (Schiehll, Ahmadjian, &

Filatotchev, 2014). The historical path dependence among

country- and firm-level mechanisms has produced a variety

of country- andorganization-specificgovernance systems that

tend to work well within the institutional environments in

which they haveevolved. Although internal andexternal gov-

ernance mechanisms are assumed to complement and substi-

tute for each other (Aguilera et al., 2015; Roe, 2005), our

understanding of the relationship between national gover-

nance systemsand the internal governance andeconomic per-

formance of firms remains limited.

The principles of complementarity and substitutability

among governancemechanisms have providedthe theoretical

basis for the configurational approach in comparative gover-

nance research (Aguilera, Filatotchev, Gospel, & Jackson,

2008; Aguilera & Jackson, 2010; Aoki & Jackson, 2008). Ac-

cordingly, similar firm outcomes may result from multiple

pathways and functionally similar effects, a principle known

as equifinality (Fiss, 2007). This principle has motivated stud-

ies on firm-level governance bundles, which havein turn pro-

duced valuable insights into why different configurations of

firm-level governance mechanisms result in similar firm out-

comes (Garcia-Castro, Aguilera, & Ariño, 2013 [M081];

Hoskisson, Castleton, & Withers, 2009; Misangyi & Acharya,

2014; Rediker & Seth, 1995; Ward, Brown, & Rodriguez,

2009).

2

However, these studies examine complementarities

and substitutions among firm-level (internal) governance

mechanisms,with limited consideration of the national(exter-

nal) governance factors of the country in which the firm

operates. As suggested by Filatotchev et al. (2013), national

182 CORPORATE GOVERNANCE: AN INTERNATIONAL REVIEW

© 2016 JohnWiley & Sons LtdVolume 24 Number 3 May 2016