Religion and Corporate Governance: Evidence from 32 Countries

This study seeks to understand the effects of informal constraints, particularly religious denominations, on corporate governance. Using archival data from a panel sample of 32 countries—between 2006 and 2010—we find that a higher proportion of Protestantism is associated with stronger corporate governance after controlling for cultural, economic, legal, and institutional factors. This study provides empirical support for the socio-cultural theory, which posits that socio-cultural variables such as religion are associated with the level of agency costs (Charreaux, 2004, Corporate governance theories: From micro theories to national systems theories, Working Paper). The findings of this study contribute to the cor- porate governance, accounting, finance, and management literature by showing that social norms, especially religion, have a strong effect on corporate governance practices. Moreover, this study provides insights for policy makers who are interested in enhancing corporate gov- ernance, allowing them to strengthen formal constraints such as rule of law for countries where there is a low proportion of Protestants, in order to improve corporate governance.