article: Alex W. H. Chan., Hoi Yan Cheung.,
“Cultural Dimensions, Ethical Sensitivity, and Corporate Governance” (2011).
Introduction and brief summary of the paper
Corporate Governance has become an essential tool for improving corporate performance and advancing the development of market-oriented democracies. Good governance practice maintain the integrity of business transactions and in so doing strengthen the rule of law and democratic governance. Chan and Cheung’s study determines mutual relationship among cultural dimensions, ethical sensitivity and corporate governance across different countries. The researchers submitted four hypotheses based on Hofstede’s cultural dimension theory. The hypotheses were that one society tends to have a high quality of CG when it has comparatively low PDI(Power Distance Index), high IDV(Individuality), low MAS(Masculinity), and low UAI(Uncertainty Avoidance Index), respectively. To examine this correlation, the authors picked up six macroeconomic factors as well as those above four cultural dimensions as variables to be supposed to impact on CG score. While this is a good approach, the problem of this research lied with the range of CG dataset. The CG data they obtained from CLSA (2001) contained only 271 observations from 12 countries. A larger sample would have aided in the data analysis, particularly when looking for the way firm-specific factors determine the differences in CG practices. The results of the research showed that three of the four cultural dimensions (IDV, MAS, UAI) and another three of six control variables (Log(GDP per capita), common-law dummy and market-to-book ratio) had significant explanatory power in predicting CG scores for firms across different countries.
Strengths of the article
This article gives an in-depth discussion of CG practices by introducing various studies about Corporate Governance. It gives a definition, possible outputs, benefits of CG and also a reason why it’s difficult to conduct CG for the firms, etc. Therefore, readers of this paper can understand without any difficulty what the CG is and how it affects the management even if they have never encountered the concept of CG. As mentioned in the paper, the study ‘demonstrated that CG scores rely heavily on cultural factors as well as economics/legal factors’ (p.55). To prove this proposition, the authors were attempting to explain the hypothesis clearly one by one. This part was significantly helpful for readers to set the obvious connection relation between the cultural dimensions/macroeconomic factors and CG score.
Weaknesses of the article
Although there are several strengths in this article as above, it also has some weaknesses. The study of Hofstede, which this article is mainly based on, has been criticized by several authors and researchers for several reasons (Baskerville, 2003; Jones, 2007; Nakata, 2009 etc.). The main critical point against Hofstede is the reliability and validity of his methodology. Apart from the controversy about whether culture is observable, measurable and therefore captured by a questionnaire (Baskerville, 2003; McSweeny, 2002), the representativeness of Hofstede’s result has been questioned due to unequal and small respond rates. Hofstede et al.(2008) claim that 50 respondents is assumed to be reliable result, but McSweeny (2002) and even I doubt the representativeness of 50 respondents for a whole nation. Since this research was built on the study facing many criticisms, the main results run a risk of being discredited. Moreover, this paper only focused on identifying which factors are related to CG scores. It would have been much more valuable if they had suggested some specific solutions that can improve CG score given certain cultural background or some performing procedures that help let all the firms informed the importance of upgrading CG. This paper did mention that ‘careful strategic planning is needed to communicate CG...
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