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The Impact of Indigenous Culture and Business Group Affiliation on Corporate Governance of African Firms

Author

Listed:
  • Hearn, Bruce

    (University of Bradford, UK)

  • Oxelheim, Lars

    (Research Institute of Industrial Economics (IFN))

  • Randøy, Trond

    (Copenhagen Business School (CBS), Copenhagen, Denmark)

Abstract
This is a study of the relationship between business group ownership and constituent firms’ adoption of Anglo-American shareholder value governance in African firms at the undertaking of an initial public offering (IPO). We find business group ownership to be associated with lower Anglo-American corporate governance adoption by constituent firms. However, this association is reversed in the institutional context of higher tribalism, while correspondingly being exacerbated in the context of lower tribalism. We theorize that the influence of business group ownership on firms’ adoption of Anglo-American corporate governance is better understood when considering the institutional context. We highlight how informal cultural institutions are heterogeneous and thus shape the indigenous political economy and impact business groups. Specifically, we argue institutional contexts with higher tribalism are associated with more in-group favouritism and nepotism. This association makes it critical for business group constituent firms to escape the constraints of the political economy of tribalism when attracting outside funding, leading to a higher inclination to adopt Anglo-American governance. Contrastingly, in lower tribalism contexts, there is more universal trust across societies and an increased availability of domestic funding. Given the proliferation of business group ownership within economies worldwide, the study provides a useful framework with which to gauge the influence of business group ownership on a constituent firm’s adoption of Anglo-American governance best practice. In particular, the study emphasizes that the interdependence of formal institutional architecture and tribalism – both fundamentally associated with the demographic shape and with the incentive structures embedded within the underlying national political economy - calls for careful considerations when making national corporate governance recommendations.

Suggested Citation

  • Hearn, Bruce & Oxelheim, Lars & Randøy, Trond, 2020. "The Impact of Indigenous Culture and Business Group Affiliation on Corporate Governance of African Firms," Working Paper Series 1360, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:1360
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate Governance Practice; Africa; Emerging Economies; IPO; Business Groups;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • M16 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - International Business Administration

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