Why Adopt Codes of Good Governance? A Comparison of Institutional and Efficiency Perspectives

Abstract

Manuscript Type: Empirical Research Question/Issue: Given the global diffusion and the relevance of codes of good governance, the aim of this article is to investigate if the main reason behind their proliferation in civil law countries is: (i) the determination to improve the efficiency of the national governance system; or (ii) the will to "legitimize" domestic companies in the global financial market without radically improving the governance practices. Research Findings/Insights: We collected corporate governance codes developed worldwide at the end of 2005, and classified them according to the country's legal system (common or civil law). Then, we made a comparative analysis of the scope, coverage, and strictness of recommendations of the codes. We tested differences between common law and civil law countries using t-tests and probit models. Our findings suggest that the issuance of codes in civil law countries be prompted more by legitimation reasons than by the determination to improve the governance practices of national companies. Theoretical/Academic Implications: The study contributes to enriching our knowledge on the process of reinvention characterizing the diffusion of new practices. Our results are consistent with a symbolic perspective on corporate governance, and support the view that diffusing practices are usually modified or "reinvented" by adopters. Practitioner/Policy Implications: Our results support the idea that the characteristics of the national corporate governance system and law explain the main differences among the coverage of codes. This conclusion indicates the existence of a strong interplay between hard and soft law.

The Effect of Environmental, Social and Governance Consistency on Economic Results

“…For these reasons, this study includes an additional dummy variable in order to reflect differences between finance and insurance industry (FINANCIAL INDUSTRY) and the rest of industries. For addressing the idiosyncrasy among regions according to their legal system, this study uses the Zattoni and Cuomo [55] criterion to classify countries according to the legal origin system (ENGLISH SYSTEM) (FRENCH SYSTEM) (GERMAN SYSTEM) (SCANDINAVIAN SYSTEM). In this case, the omitted dummy is the one for countries with a legal system based on the English law tradition.…”

Image differentiation with corporate environmental responsibility

“…Such an argument might suggest that those differences might question the representativeness of the outcome of such comparative studies. However, as Zattoni and Cuomo (2008) posit, countries more exposed to other national economic systems experience greater pressure to harmonize and legitimate their governance practices. Therefore, it is assumed by this researcher that Finland having a well developed and expansive industrial base that operate in a market with minimal cases of cronyism, corporatism and corruption must have well developed and institutionalised best practices that allow the economy to self regulate.…”

Governance Codes and Types of Issuer - An Empirical Research on a Global Sample

“…The spread of the governance codes has been explained basing on two theoretical perspectives: efficiency theory and institutional theory (Strang and Macy, 2001;Di Maggio and Powell, 1983;Tolbert and Zucker, 1983;Westphal et al, 1997). These perspectives has been considered as complementary rather than alternative, in explaining the diffusion of governance codes (Aguilera & CuervoCazurra, 2004;Zattoni & Cuomo, 2009). …”

“…The work of Enrione, Mazza and Zerboni (2006) studied the process of institutionalization of governance codes and the role of different actors involved in issuing the codes. The paper of Zattoni & Cuomo (2009) explored the efficiency and legitimacy motivations behind the codes adoption in Countries with different legal systems. Neither of these studies, though, undertook a direct investigation of the relationship between the codes contents and the type of issuer.…”

“…The codes contents is investigated calculating two indexes (Zattoni & Cuomo, 2009). The first index measures the code coverage, that is the number of recommendations addressed.…”