The governance role of informal institutions: the effect of cultural values on corporate governance level

Abstract

Purpose As one of China’s informal institutions, red culture serves a soft constraint function in economic and social development. However, the question of its impact on corporate governance remains unresolved. This study aims to examine the association between Chinese red culture and corporate governance level. Design/methodology/approach Hypotheses were tested using multiple linear regression models based on hand-collected data on red culture and a sample of Chinese listed companies from 2009 to 2020. Findings Red culture, as a carrier of specific cultural values, significantly promotes corporate governance level. In addition, red culture promotes the level of corporate governance through two channels by improving the quality of internal control and shaping a culture of corporate collaboration. Moreover, in companies with strong market power and for Chief Executive Officers (CEOs) with military experience, the positive impact of red culture on corporate governance is more significant. Originality/value This study examines the impact of red culture on the level of corporate governance in enterprises using a unique red culture dataset collected manually. It not only contributes to the existing body of research on informal institutions and corporate governance, but it also provides empirical evidence of the impact of red culture on corporate governance level. Furthermore, the findings are socially oriented, which facilitates the effective integration of corporate and social governance by underscoring the soft constraint function of red culture.