Exam Material

Question 1

What is meant by “Liability of foreignness”

Answer 1

The liability of foreignness is a term used in international business to describe the disadvantages that foreign firms face when operating in a foreign country.

These disadvantages can arise from a variety of factors, including differences in cultural norms, language barriers, and regulatory differences.

As a result of the liability of foreignness, foreign firms may be at a disadvantage compared to domestic firms when it comes to competing in the local market. This can make it more difficult for foreign firms to enter new markets and can put pressure on their ability to operate successfully in those markets.

Question 2

“career employment” in Japan

Answer 2

Lifetime employment or shushinkoyou refers to large organisations hiring ‘rookiesГ in the spring of every year, even when these organisations have no jobs for them. Once hired, they retain their employment until retirement (Yoshida 2001; Wolcott 1994; Arai 1998).

Question 3

“Cultural-cognitive institutions” have to do with

Answer 3

shared beliefs, scripts, heurestics, mental models

mechanisms of mimetic
basic compliance taken for granted
logic orthodoxy
basis of legitimacy in culture, recognizable

Question 4

Normative institutions have to do with

Answer 4

informal norms, values practices, customes, taboos

mechanisms of normative
basic compliance social obligation
logic appropriateness
basis of legitimacymorally governed

Parent-Teacher Association (PTA)
Democratic political party.

Question 5

Regulative institutions have to do with

Answer 5

formal rules, regulations

mechanisms of coercive
basic compliance expedience
logic instrumentality
basis of legitimacy legally sanctioned

Question 6

The main difference between the work of Hofstede and that of Schwartz
a. Hofstede’s employs the etic research approach, and Schwartz the emic approach.
b. Hofstede’s work is based on a survey among individual managers, and Schwartz’ work is based on a surveys among groups of pupils.
c. Hofstede’s work is more deductive, and Schwartz’ work is more inductive.

Answer 6

None of the above is true..

Question 7

Logical Empiricism vs. Hermeneutics

Answer 7

• ‘logical empiricism’ → there should be a difference between ‘Your theories’ and ‘real world of phenomena’. Hypothesis allows you to zoom in on a particular part of the real world — analytical, with data
• Hermeneutics is a natural way of acquiring social knowledge, by “putting yourself in the shoes of the other”. However, hermeneutics is not risk free, and more prone to error the bigger the “distance” between self and other. This danger is aggravated by the fact that much of human behavior is symbolic (rather than instrumental)

Question 8

In a series of World Value Surveys, the percentage of Japanese people who believe that ‘leisure time is very important in life’ increased from 20% in the early 1990s to over 40% in recent years. This finding suggests that

Answer 8

Cultural values change as a function of increasing wealth and economic development.

Question 9

Shareholder approach vs. the stakeholder approach to corporate governance

Answer 9

The shareholder approach emphasizes profitability over responsibility, whereas the stakeholder approach stresses that a firm should be profitable as well as socially and environmentally responsible.

While the shareholder approach deals with the challenge of principal-agent problems (i.e. minimizing agency costs), the stakeholder approach tries to
balance interests among different stakeholders.

The shareholder approach sees the firm as an instrument to serve the interests of shareholders, whereas the stakeholder approach conceptualizes
the firm as a joint venture to serve the interests of all parties involved in the firm’s business.

Question 10

The Resource Curse

Answer 10

It has another name, “the Dutch disease”. It leads to deindustrialization and lower long-term productivity growth. It refers to a negative relationship between natural resource abundance and long term economic development.

The resource curse, also known as the paradox of plenty or the poverty paradox, is the phenomenon of countries with an abundance of natural resources having less economic growth, less democracy, or worse development outcomes than countries with fewer natural resources.

Question 11

Why is there an inverted U-shaped relationship between economic success and network closure?

Answer 11

Because although network closure brings about benefits like trust, reciprocity, fine-grained information exchange etc., over-embeddedness leads to inertia, group think, and isolation from the outside world.

Question 12

Forces promoting and impending Globalization

Answer 12

• Forces Promoting Globalization — 5
  
  1. decrease in transportation costs
  2. decrease in communication costs
  3. integration of international financial markets
  4. mass media
  5. international migration
• Forces Impeding Globalization — 5
  1. Economic
• Lower company profits outside of home market
• Wealth creation — less jobs in the country, more money invested abroad
• Wealth redistribution — inequality, since paying people less abroad, but selling them in higher price in home country, making profit there
  2. Social
  Unbalanced benefits, since only corporations seem to benefit, when ordinary laborer do not benefit from globalization, the world becomes richer, but ordinary people don’t have access to wealth
  3. Cultural
  Cultural authenticity worries, elements of culture stolen by Western countries
  4. Political
  Trilemma of globalization sovereignty and democracy = you can’t have all three to the fullest, compromising
  5. Technology
  Development as a factor to de-globalization
  Share of value in labor much smaller, which leads to less off-shoring and focusing on near-shoring

Question 13

Limits to Globalization → Economic factors, Social factors, Cultural, Political

Answer 13

1. Economic
   - Lower company profits outside of home market
   - Wealth creation — less jobs in the country, more money invested abroad
   - Wealth redistribution — inequality, since paying people less abroad, but selling them in higher price in home country, making profit there
2. Social
   Unbalanced benefits, since only corporations seem to benefit, when ordinary laborer do not benefit from globalization, the world becomes richer, but ordinary people don’t have access to wealth
3. Cultural
   Cultural authenticity worries, elements of culture stolen by Western countries
4. Political
   Trilemma of globalization sovereignty and democracy = you can’t have all three to the fullest, compromising
5. Technology
   Development as a factor to de-globalization
   Share of value in labor much smaller, which leads to less off-shoring and focusing on near-shoring

Question 14

The trilemma of globalization, sovereignty and democracy

Answer 14

The trilemma of globalization, sovereignty, and democracy refers to the challenge of reconciling the three concepts in a globalized world.

Globalization refers to the increasing interconnectedness and interdependence of people, businesses, and countries around the world.

Sovereignty, on the other hand, is the concept that nations have the right to make their own decisions and exercise control over their own affairs.

Finally, democracy is a form of government in which power is held by the people, typically through elected representatives.

The trilemma of globalization, sovereignty, and democracy arises because globalization can conflict with a nation’s sovereignty and democratic decision-making. Similarly, globalization can create challenges for democratic decision-making, as global economic forces can shape domestic political debates and policy decisions.

Question 15

4 possible scenarios — for future of globalization

Answer 15

• Convergence — Anglo-American version of capitalism, meaning more freedom in trade, lower regulations in labor markets and government involvement minimal, strong property rights and contract enforcement but low taxation (low welfare) USA, contradicted in China’s and Japan’s success of Asian Model
• Specialization — economies should specialize in things they have an advantage on, Porter’s Diamond Model, however much of the trade is within industries in large corporations
  
  • Basically what conditions and resources the country has taken as an advantage if there is a strong demand and clients value the products. Taken into consideration the rivalries strategies and how they compete in the markets as well as the quantity of related and supporting businesses.
  • All while taking into consideration the government’s involvement and the chances of disasters and crisis.
• Incremental
  
  • All economies tend to move towards the most efficient system, but cultural and institutional constraints slow firms in this process
• Hybridization
  
  • Part of the economy is affected by globalization, parts of it remain domestic (health care, education, construction etc.)

Question 16

Origins of culture — differentation, homophily, social identity dynamics

Answer 16

Differentation — People tend to make in- and out- group observations on them and other people. There is multiple ways that people make these distinctions. Homophily is the trait of interacting more with people who have similar traits:

Process-based, choice-based

1. Value Homophily
2. Status Homophily
3. Induced Homophily — interactions over time make people more similar

There’s also the distinction of social dynamics — individual dynamics (what distinguishes me from others) and social identity (what do we have in common, culture, ethnicity, religion etc.). People tend to make observations and categorize themselves and others

Question 17

What are the origins of culture?

Answer 17

Adaptation — survival to environment, transmitted behaviors based on their environmental settings, change is the process of adaptation and natural selection

Hoefstede — Cultural Consiquences

Outside influences (forces of nature) affect origins, ecological factors (expected), that have influence on value systems and major groups of population ending up changing the structure of functioning and institutions. The changes in these affect origins and societal norms.

Differentation — People tend to make in- and out- group observations on them and other people. There is multiple ways that people make these distinctions. Homophily is the trait of interacting more with people who have similar traits:

1. Value Homophily
2. Status Homophily
3. Induced Homophily — interactions over time make people more similar

There’s also the distinction of social dynamics — individual dynamics (what distinguishes me from others) and social identity (what do we have in common, culture, ethnicity, religion etc.). People tend to make observations and categorize themselves and others

The individuals tend to serve the people in their group above all, even at their own expense. (not fair, not max payoff if out group gets more)

Question 18

What is the - Etic approach

Answer 18

outsider approach, judged by community of scientific observers, empirical cycle, logical empiricism

• Compare and generalize among borders of individual countries, large samples and measuring cultures in quantitative nature
• Issues in translation and local context

Question 19

Geert Hoefstede - 6 dimensions of culture

Answer 19

1. Individualism vs. Collectivismconforming to community values or being personally
   responsible for your own success and achievements?
2. Power DistanceThe extent to which the less powerful members of organizations and institutions accept and expect that power is distributed unequally
3. Uncertanity Avoidancethe extent to which members of a culture feel threatened by uncertain or unknown situations — planning or spontanious
4. Masculinity vs. FemininitySocial gender roles clearly distinct (M) or overlap (F)
5. Long vs. Short-term orientation(L) Emphasis on future rewards, in particular perseverance and thrift(S) Emphasis on the past and the present: respect for tradition, preservation of ‘face’, and fulfilling social obligations
6. Indulgence vs. RestraintThe degree of freedom that societal norms give to citizens in fulfilling their human desires.(I) Enjoying life and having fun(R) Controls gratification of needs and regulates it by social norms

Significant results have been determined and concluded that culture has a significant impact on organizational effectiveness — managerial implications needed

• Dimensions have effect in wealth, economic conditions, gender roles, supervisor satisfaction, innovation, income equality etc. (used the first four dimension, without restraint or long term orientation)

Question 20

Ingelhart - World Values Survey

Answer 20

• Impact of values on societies over time, rooted in religion and related norms from 120 + countries

1. main dimensions — traditional vs. rational-secular authority, and survival vs. self-expression

Traditional faces changes with suspicion and prefers to keep things the way they are. Religious and family-oriented beliefs. Whereas rational-secular are more pragmatic and move with the changes, less importance on religion.

Survival values have emphasis on security and relatively low levels of trust and tolerance. Self expression have higher priority to environment, more liberal views and demand participation in decision making.

• Limited for managerial purposes but ease of generalization of population in a country and cultural differences over time
• Southern parts of the world and Africa very traditional (Africa, Southern Latin America, Southern Asia)
• Self-expression and Secular-Tradition more familiar with countries with higher GDP per capita

Question 21

Inglehart (WVS): Modernization, postmodernization

Answer 21

“Economic, cultural and political change go together in coherent patterns that are changing the world in predictable ways.”

1. Traditional versus rational secular authority
2. Survival versus self expression

All changes affect each other — Modernization & Post-modernization: shift from traditional authority to secular one, shift from survival to well-being

Transition to modernization

• Industrialization, economic growth, women into paid work force, division of church and state

Transition to post-modernization

• Knowledge-based economy, flexible employment, non-traditional households, equality of genders

Inglehart — Economic development affects cultural values, meaning that higher GDP per capital countries have less tradition, more self-expression and secular-rational dimensions

• Countries with higher democracy experience higher self-expression values, especially Nordic countries, Germany and Switzerland after post-modernization
• US and Ireland still traditional, even though higher self-expression
• Baltic countries and Russia still more on the survival side of the spectrum
• Asian countries high in survival

Question 22

What is Emic Apporach on Research?

Answer 22

Insider approach, distinctions that are by the actors themselves.

• Cultures are systems of meaning, and can only be understood from within ➔ “Hermeneutics”; interpretative cycle
• Open exploration until observations start “to make sense”

Hermeneutics = methodology based on the assumption that we can ‘we can get into the heads’ of other people (reinversetzen) → a form of empathy. Human behavior is symbolic, so prone to error since the interperation depends on the cultures

Social reality is “equivocal” — behaviors can have different meanings, the greater the distance the more difficult it is to connect the meaning of signs.

Emic research is trying to understand the meaning behind cultural symbols.

Question 23

What did Philippe d’Iribarne researched?

Answer 23

Example of emic research — Philippe d’Iribarne

• Criticizing of the application of Hofstede’s power distance scale in France (vs. NL and USA)
• The meaning of an element depends on local context, hierarchy does not mean power in France
  
  • Logic of contract
  • Logic of discussion and argument
  • Logic of sharp division between occupational groups
    
    • Various positions of power on different areas: knowledge, status, formal position = symbolic distance between different levels of hierarchy, decreasing effective power of the boss (especially on power based on status)

Question 24

What did Clifford Geertz research?

Question 25

Observations regarding the Berry et al. (2010) measures

Answer 25

Rankings: ​assume that institutional systems can be rated on some dimension, from very good to very bad

Distance scores : ​do not assume that institutional systems are “good” or “bad”, but that they differ in a number of specified dimensions

→ Construct measures for 9 dimensions (all normalized for country/population size): dimensions: economic, financial, political, administrative, cultural, demographic, knowledge, connectedness, geographic

• Culture​ can be seen as ​part of institutions​ but can also be seen as different
• Culture emerges and evolves tough interaction processes​ , mostly without any intentionally
• institutions​ can be ​intentionally​ ​created​, and or imposed
• cultures and institutions influence each other
• Values and beliefs influence the way people act and perceive situations, these interactions evolve culture (sometimes unintentionally) and collectively influence institutions.
• Institutions constraint and enable people’s behavior, which affects the behavior, perceptions and attitudes — culture influence.

Question 26

Characteristics of the Japanese management system — triangle of lifetime employment, “Nemawashi” and “Ringiseido”

Answer 26

Lifetime employment, the compensation system, the employment adjustment system, and consensus decision making are important elements of the Japanese management system. These elements hang together in a coherent system, containing “safety valves”.

Lifetime employment — Loyalty, Collectivism, Social Harmony

Recruited straight from school/college/university, emphasis on internal training and working in the same company till retirement. No contract from either side, but laying off staff is the ‘worst sin of an employer’

• Compensation system
  
  • Promotion through steps with age and seniority
  • Symbolic rather than substantive, but for performance more often
• Employment adjustment system
  
  • Overwork over overcapacity
  • ‘Voluntary’ early retirement
  • Use of ‘non regular workers’ — mostly women, but participation for a longer period of time
  • Displacing jobs to other firms in the Keiretsu — business structure comprised of a network of different companies (banks, supply etc.)
• Consensus decision making
  
  • Bottom up and top down decision making, with big role on the middle management
  • Group consensus to a given issue — agreeing or being aware
  “Nemawashi” and “Ringiseido”

Nemawashi → Informal one on one discussions to prepare the ground for a decision: Where to start and the right order in which to consult others based on tacit knowledge — Formal decision at the end is a formality

Ringseido → Document with new proposal is circulated through the organization, typically starting bottom up. Each person consulted puts his personal “hanko” stamp on the document
- Acts as corporate official record and maintains order of the system
- Approval must be gained by all departments affected by the change

In the future either more dynamic, or because of the uncertainity as of late in the economy and global crisis, uncertanity avoidance still a huge factor in the labor market. Lifetime employment remarkably favored by among young generations (20s and 30s)

Question 27

Institution roles in Japan: unions, regulative, normative, cognitive, cultural

Answer 27

Unions based on association with the firm, rather than the industry or profession, cooperative with the management, and protection of employment is priority

• Consensus in decision making, Japanese system resulting in low level of
  labor unrest and labor strikes
• Dual economy: large (originally family-owned) enterprise groups vs. small and medium-sized enterprises
• Regulative institutions
  
  • Legally labor contracts can be terminated with two weeks notice
  • Firing lifetime employee requires “reasonable grounds” based on
    “common sense of society” — business necessity, a last resort, objective and reasonable, and fully consultative
  • Not conducive to strong centralization of union power
    
    • Negotiate important elements of employment conditions together, securing wage increases, better access to health care, workplace safety enhancements etc. — not there, standardized
    • Value more on: collectivism and uncertainty avoidance
• Normative institutions
  
  • Loyalty, trust, commitment to work and company
  • Strong social norms of social obligation and self-sacrifice
• Cognitive institutions
  
  • Lifetime employment based on expectations rather than formal rules
  • System of expectations and social norms prevents rise of external labor market
• Culture
  
  • Strong uncertainty avoidance and medium to strong collectivism has often been seen as (partial) cause of lifetime employment
  • Very strong masculinity — women in part-time labor, but work long
  • Self-sacrificing for the group
  • Long-term orientation

Question 28

Chinese management and characteristics - square

Answer 28

• Paternalistic leadership — Three elements of paternalistic leadership
  
  • Authorianism
    
    • Authoritarian and controlling towards employees
    • Manager discipline, expect loyalty and hard work
    • Subordinates obedient
  • Benevolent leadership
    
    • Individual care, concern for well-being: protection and well-fare
  • Moral integrity
    
    • Unselfishness, leading by example
• Management through relationships
  
  • Informal, direct, face to face
  • Good conduct (reliability, trustworthiness) more important than
    objective performance criteria
• Centralized authority
  
  • Either bureaucratic or personalized
• Dual management system: Bureaucratic sector < ➔ Entrepreneurial sector
  
  • SOEs, state and public organizations versus private firms
  • 20% of Fortune 500 companies are Chinese state-owned enterprises, state owned enterprises account for 40% of Chinese industrial assets

Question 29

Contemporary Chinese culture

Answer 29

• Centralized authority & Paternalistic leadershipLarge power distance, patriarchal tradition, mutuality and governance by virtue
• Management through relationshipUncertainty in changes, collectivism, Confucianism in basic philosophy, importance of ‘face’

Cultural changes —> Incompatible values and adaptation to modern leadership and management needed (authority), but benevolence expected, even though may contradict privacy and equity. Moral crisis between materialism and wealth, increasing individualism and self-expression — yin-yang balance, hybrid culture with large generational gaps

Traditional values — submission to authority, ancestral worship, conservatism, defensiveness, male dominance

Modern values — egalitarianism and open mindedness, social isolation and self reliance, optimism and assertiveness, and gender equality

Question 30

Dichotomous system: Anglo saxon vs European (Rhineland) model, (Asian Model) with it’s dimensions

Answer 30

Anglo: US, EN, AU, flexible labor markets
EU: SWE, GR, FR, rigid labor markets

• Finance
  
  • Anglo-Saxon: more equity finance, short-term
  • Rhineland: more bank/debt finance, long-term
• Ownership structure
  
  • Anglo-Saxon: dispersed, more ownership by investment funds
  • Rhineland: concentrated, more cross-shareholding with other companies, more ownership by banks/govt/founding families
• Relationship between stakeholders and management
  
  • Anglo-Saxon: Arm’s length
  • Rhineland: Close relationships with stakeholders
• Governance structure
  
  • Anglo-Saxon: Unitary board: Board of Directors
  • Rhineland: Dual board: Supervisory Board & Management Board
• Corporate restructuring
  
  • Anglo-Saxon: Takeover as a credible threat
  • Rhineland: Hostile takeover is less common

More hybrid systems: i.e. Japanese system:

• Bank-oriented finance & Cross-shareholding with affiliated companies (~Rhineland)
• Unitary board, few outside directors (~Anglo-Saxon)
• Corporate restructuring (~Rhineland): hostile takeover less common

Question 31

Economics & management perspective: Corporate Governance

Answer 31

Economic and management — principle and agent focus

• Agency perspective: Suppliers to finance — deals with how they get return on their investment
• Stakeholder theory: Number of stakeholders — who invest firm-specific resources, but jointly relinquish control over those resources to a board of directors for their own benefit in order to solve the problem of coordinating efforts within the team.”
• Variety of perspectives from economics, law, political science, culture and sociology

Question 32

Comparative corporate governance - Paradigms of explanations

Answer 32

1. Economic and Management Perspectives

A. Agency theory

B. Role of financial systems

C. Stakeholder theory

2. Cultural and Sociological Perspectives
3. The Legal Origins Perspective and Comparative Approaches to Law
4. Political Explanations

Question 33

Economic and Management Perspectives to corporate governance:

Answer 33

• Agency theory
  
  • Comparative governance usually conveiced to minimize agency problems
  • Shareholders are assumed to maximize returns, management may prefer growth to profits, may be lazy or fraudulent, and may maintain costly labor
• Costs increase in case of
  
  • imperfect info,
  • contract limits, difficulty to approach managers
  • free riders
    To minimize problems:
    Managerial control: → align interest of principal and agent, incentive approach
    Blockholder control
    Shareholder/external control
    → align interest of principal and agent; independent members of board act on behalf of shareholders and they can disclose more information to owners = lowering agency cost.
• Financial systems
  
  • Offers an institutional theory of the supply side of finance, where the critical variable is the capacity of the banking sector to engage in industrial finance:
  • Corporate monitoring through bank-oriented systems (debt/equity) and capital market-oriented system for equity financing, corporate control market)
• Stakeholder Theory
  
  • Economic theory suggests stakeholder participation may be related to efficiency, based on models of team production, commitment, firm-specific investments, and risk sharing
  • i.e. Giving voice to employees: “agents” → “trustees” This improves trust between labor and management; this facilities investment and increase internal information flow.

Question 34

Cultural Perspectives — How culture may be related to cross-national diversity in corporate governance?

Answer 34

• Diverse organizations play into their respective societies — Japanese management = harmony, groups and older cultural preferences
• Hofstede’s cultural indices and the nature of financial systems and financial behavior — country dispersed ownership & individualism index, uncertainty avoidance, individualism
• Culture as an informal institutions or practices, may interact with diversity in corporate governance—supporting, constraining, or substituting for formal institutions
  
  • strong formality in the US, cultural distance & formal organizations correlations
  • sometimes seen that informal cultural factors fill out institutional (legal) norms on absence of rules and regulations

Question 35

Political Explanations in corporate governance

Answer 35

• Governance evolves through a dynamic process of competing
  interests, competing interpretations of institutionalized norms, processes shaped by political institutions.
• political factors and financial institutions shape regulations and shape the organization’s rules and norms that guide how individuals, organizations, and markets interact with each other.

i.e Concentrated ownership is highly correlated with the strength of left-wing

Question 36

How culture, as a set of informal institutions or practices, may interact with diversity in corporate governance—supporting, constraining, or substituting for formal institutions?

Answer 36

• development of strong formal institutions in US → expressions of culture norms of meritocracy rather than particularistic ties found in bank centered systems.
• High cultural distance → can crowd out or impair the implementation of some types of formal organizations. So. cultural distance & formal organization is linked to each other.
• Some authors see cultural factors as a functional substitute in filling “institutional voids” (formal deficiencies in a society) characterized by “the absence of specialist intermediaries, regulatory systems, and contract-enforcing mechanisms”
• informal norms as substitutes of legal norms → so instead of legal norms, these societies use more informal norms of control the behaviour of ppl

Question 37

How the legal system shapes different dimensions of corporate governance?

Answer 37

The legal paradigm → explaining cross-national comparisons by:
1. establishing the ​boundaries of property rights

→ shape capital specifically by establishing rights that favor different types of shareholders:

Veto rights: solid veto rights for shareholders → small shareholders have disproportion influence over the decisions of the mangers.
Voting caps: ​A limit on the percentage of the total vote that voters of a particular classification can make.
Mandatory information disclosure: ​favors small investors; as info also gets shared w small investors (big investors probably already enjoy advantages of
private information) Therefore, if it is legally mandatory = this protects small investors property rights.

2. defining the ​quality of law ​based on legal family origins
   If there is poor investor protection → most likely to have high ownership concentration. 2 reasons why there would be high ownership concentration in
   countries with poor investor protection
   (1)if there is poor investor protection; large blockholders may need to hold more shares in order to seek control over managers.
   (2) small investors, in the preference of poor investor protection, only buy shares at a discount
   Distinction between two families of legal origins:

Common law: grants higher minority shareholders rights → dispersed ownership (based more on oral argumentation) More focus on shareholder protection → minority shareholder rights

Civil law:​ based on codes and is characteristic of Continental Europe → offers weak(er) minority shareholder rights → discourages ownership dispersion.

3. engaging in ​new forms of regulation​ such as soft law
   The effectiveness of soft law versus hard law​ — the one that is enforced by the state as opposed to voluntary codes:

– Explained by how difficult it is for countries to pass hard law.
– When norms are jointly created through dialogue among different stakeholders, once these norms are effective, they are less likely to be decoupled and more likely to be fully internalized by all stakeholders.

Question 38

How national legal systems might explain cross-national differences in corporate governance models?

Answer 38

The Legal Origins Perspective and Comparative Approaches to Law Paradigms of explanations

The legal paradigm → explaining cross-national comparisons by:
1. establishing the ​boundaries of property rights
2. defining the ​quality of law ​based on legal family origins
3. engaging in ​new forms of regulation​ such as soft law

Question 39

The effectiveness of soft law versus hard law

Answer 39

The effectiveness of soft law versus hard law​ — the one that is enforced by the state as opposed to voluntary codes:

“Why for example the United States has developed a​ hard law​ (such as the 2002 Sarbanes–Oxley Act) to improve governance accountability, whereas most advanced industrialized countries have relied on voluntary​ codes of good governance based on
“comply or explain” expectations?”

– Explained by how difficult it is for countries to pass hard law.
– The need to increase quickly the efficiency of capital markets in order to attract domestic savings and foreign portfolio investments.
– When norms are jointly created through dialogue among different stakeholders, once these norms are effective, they are less likely to be decoupled and more likely to be fully internalized by all stakeholders.

Question 40

How the corporation is shaped by the exercise of political power? How state intervention and politics represent a critical factor?

Answer 40

Research → corporate governance evolves through a dynamic process of competing interests, competing interpretations of institutionalized norms, processes shaped by political institutions.

Fligstein (1990): “​the changing rules of the market lead to new strategies and structures → transforming the prevailing institutionalized conceptions of corporate
control”​ ​i.e. development of US Corporation: Sherman Act (1890), Clayton Act (1914), Celler- Kefauver Act (1950)

Question 41

Trust & Labour Markets

Answer 41

Trust exerts influence on the functioning of the labor market, through several channels
affecting growth:

1. The quality of labor relations
   → if you trust your superior - you can better adapt to new management methods and have better relationships → better productivity when the quality of labor relations is good:

• lower unemployment
• employees become better to adapt to new management methods
• unions become more existent → upgrading the quality of labour relationships

Countries with higher generalized trust have higher levels of cooperative relations between labor and management and higher levels of unionization:
→ more unionisation ​=​ increases cooperation level ​=​ increases productivity levels

2. Flexicurity ​(​flex​ibility & se​curity​)
   Countries displaying high trust tend to insure their workers through unemployment benefits instead of using rigid employment protection: Countries of northern Europe have adopted a “​flexicurity​” model that combines generous unemployment benefit, effective public job search agencies, and weak
   employment protection.

Flexicurity​ ​is linked to​ better labor market performance​: higher rates of employment & better reallocation of jobs toward more productive enterprises.

Question 42

Can trust be changed?

Answer 42

→ ​trust​ is ​partly inherited form past generations ​and shares through historical shocks BUT trust is also shaped by personal experiences ​and the current environment

Policies that can shape both contextual beliefs and deeper preferences:
– Institutions
– Community characteristics
– Education

Question 43

How can institutions and which institutions shape trust? Do formal rules and norms set in institutions act as a complement or a substitute for informal values such as trust?

Answer 43

weak legal enforcement​ forces ​citizens​ to​ rely on informal and local rules​ and to develop ​limited trust​ as opposed to generalized trust. The lack of legal and formal institutions for property right of the land let the mafia ‘fill the gap’ mafia in Siciliy, here being and informal institution

state must intervene when generalized trust is low as ppl cant function on their own. So state should increase the # of steps required to open a business.

Market regulation increase when trust decreases.
institutions and trust are positively related to each other

Question 44

Community characteristics and role of education in trust

Answer 44

1. Inequality
   High-trusting societies are also more equal, while low-trusting societies show typically higher levels of income inequality.
2. Ethnic fractionalization: ​ethnic diversity (in neighbourhoods) drives down trust → ​rely more on
   ‘ingroup’. ​Residential segregation, rather than ethnic diversity drives down trust

Education
more # of years in schooling = higher trust

Vertical ​& ​Horizontal ​teaching practices
- Horizontal​ teaching ​practices have a substantial ​positive​ ​impact​ on students’ social capital while ​vertical teaching ​practices crowd out beliefs in cooperation

vertical teaching : teachers are lectures and student take notes etc teacher ask questions hierarchy between teacher and student

horizontal teaching: central relationship is among students. students ask teachers question and less it is less hierarchal

Question 45

Empirical relationship between trust, income per capita, and growth

Answer 45

• the higher the income per capita the higher the generalized trust
• increase in trust also increases income per capita (positive corralation)

region average - generalized trust and income per capita
→ positive correlation
e.g northern italy and northern spain are high trust and income regions whilst southern perform worse in both dennisons

state average - generalized trust and income per capita
→ positive correlation Southern states (former french colonies) have weaker levels of trust

→ trust is more important when formal institutions are weaker. The effect of trust then on GDP growth is way more substantial.

Question 46

Beugelsdijk & Welzel — Cultural Change

Answer 46

• Collectivism - individualism (+ Power Distance, both Inglehart overlapping): religion, tradition, responsibility, equality
• Duty - Joy (Indulgence vs. Restraint, Long-term vs. Short-term orientation overlap): importance of hard work, democracy and innovation
• Distrust - trust (Uncertanity Avoidance overlap): conservative, sees politics as unimportant ir duty to society, responsibility and maintanance of order

To go with Hoefstede’s dimensions and Inglehart — World Values Survey data for an alternative longitudinal analysis

• Over time, tend to go towards more individualism, joy and more distrust
• Less individualism in developing societies, low income countries and former Soviet countries, more on post-industrial democracies
• Joy increasing on all — post-modern is showing flat line
• Degree of trust decreased for a long period of time, in democracies after 80s going up, low income and developing still decreasing

More individualistic, more joyous

Question 47

Cultural differences can be explained by three factors

Answer 47

○ Economic development

○ Generational effects

○ Political history

Question 48

Postmodern Management

Answer 48

Before: efficiency, perscription, supervision, whereas now:

• Creativity (including creation of “self”)
• Emotional connection
• Interpenetration of work and life

Implications

• Less structures, hierarchy and more teams
• Emphasis on discussion and dialogue, experimentation instead of strategic planning
• Self-expression

Question 49

Etic approach: Evaluation & Implications for management

Answer 49

• Oversimplified — cultures more complex, only “outsider” perspective of another culture, neglects wihtin-variations of single culture

For management — Hoefstede’s dimensions

- Power Distance — Centralization of power, income inequality along hierarchy, status

- Uncertanity Avoidance — amount of rules and prochedures, formalization of structure, managers specialists, inclined to job changes

- Individualism-Collectivism — relationship between organization and employee, source of motivation: contract, security, independence, survival = income, self-expression = intrinsic motivation

- Masculinity-Femininity — Work centrality  (M) Live to work, high income —  (F) Work to live, less work  (M) Managers to be decisive — (F) managers to be consensus-seeking

Question 50

What is Porter’s Diamond Model

Answer 50

The competitive advantage of nations.

The model suggests that the national context in which firms operate can play a significant role in their ability to compete in international markets. Porter’s Diamond Model identifies four key determinants of national competitive advantage:

the presence of factor conditions, such as the availability of natural resources, skilled labor, and infrastructure;

the existence of related and supporting industries;

the presence of strong demand conditions in the domestic market;

and the presence of firm strategy, structure, and rivalry among domestic firms.

Together, these determinants create a competitive environment that can either support or hinder the ability of firms to compete globally.

Question 51

Contingency Approach

Answer 51

• Characteristics of management depend on contingency factors, that have to do with technology, environmental turbulence, size of organization etc. All have to do with organizational characteristics and management style.
• In empirical research explaining differences in management and organization, need to consider culture and institution contingency factors

Question 52

Schwartz’s Culture Model

Answer 52

• Hierarchy vs. Egalitarianism
  Mastery vs. Harmony
  Embeddedness vs. Autonomy

South American cultures typically clustered right in the middle of the figure.

The English speaking countries highly valued Mastery and had higher values on Hierarchy than on Egalitarianism. This does not mean that they didn’t value Autonomy or Embeddedness but that on average the populations didn’t have a clear preference for either.

The rest of Western European countries were mainly in area around Egalitarianism and Intellectual Autonomy.

Eastern Europe also favored Egalitarianism but is a little more towards Embeddedness than Western Europe, and The Middle East and most of Asia Embeddedness and Hierarchy were dominating.

Question 53

How does Maslow’s Hierarchy of Needs differ in West ans Asia and what does it tell about culture?

Answer 53

West:
1. Self Actualisation
2. Prestige
3. Belonging
4. Safety
5. Psychological

West:
1. Status
2. Admiration
3. Affiliation
4. Safety
5. Psychological

Example of cultural relativity of values — differs from Chinese Hierarchy of needs

Question 54

Definition of Culture, 2. perspectives - How do values and beliefs affect dual processing theory?

Answer 54

Group with shared meaning of tradition, symbols, values, behavior, ideas and beliefs determing their actions and social interaction, but also internal ideas and thoughts.

Promotes behaviors that are helpful for the group to sustain in its particular environment. In this view culture is an adaptive system — it serves to relate a community to its ecological setting

Ideational system view — In this perspective culture consists of behaviors and beliefs that are cumulative creations of the mind

Culture affects internalized values and beliefs that people have and most of the time are firmly set, sometimes also making the connections into casualties “working hard leads to success”. The social reality is multicultural, which is why it is important to understand that there are many ways of thinking and doing. Two ways of processing:

• Implicit is the reflex — non conscious, fast, automatic
• Explicit system —conscious and controllable, effortful and considerate to other cultures

Question 55

Confucianism, collectivism, impact and characteristics on Chinese management

Answer 55

Strong influence of Confucianism and collectivism, continuity in Chinese culture but massive changes in institutions: collectivism link attempt to country and state, confucianism initially rejected by CCP. The two factors that have helped:

1. Perceived need to protect the integrity of the environment
2. Need for locals to do community work

• Two contrasting observations:
  1. Remarkable continuity of Chinese culture
  2. Massive changes in Chinese institutions

philosophy of Confucius emphasizes personal and governmental morality, correctness of social relationships, justice and sincerity.
Organization of society in five relationships — respect for hierarchy, harmony and respect for tradition & hard work

Collectivism - Trust is personal and strong within the in group and weak with out group, trust and reputation, within the in group protection of “face”.
Guanxi = long-term murual equity and trust
relationship, dimensions: emotional attachment, principle of favors, interpersonal trust

• Paternalistic leadership and centralized authority are supported by cultural-cognitive factors: confucianism, large power distance in culture
• Management through relationships is supported by cultural-cognitive factors, uncertanity by massive institutional changes, tradition in collectivism, confucianism
• Return of free entreprises, no hyper competition, increase in liberalization of cross border streams of capital, goods and services
• Still a hard market to enter because of the laws and regulations as well as cultural impact

Question 56

How one should interpret the dimensions of culture, such as “uncertainty avoidance”? — as institutions may reflect peoples’ values, people learn to live with institutions and may (or may not) come to value them

Answer 56

Just as institutions may reflect peoples’ values, people learn to live with institutions and may (or may not) come to value them. (2 sided relationship in between these 2 dimensions)

Sociological Perspectives

“Since institutions are humanly devised, understanding variation in institutions implies a need for understanding human action creating institutions”.

• US — shareholder value thinking, Germany — serving society and balance the agency interests, Japanese — society and employees

Question 57

Political Explanations - How the corporation is shaped by the exercise of political power? How state intervention and politics represent a critical factor?

Answer 57

Corporate governance evolves through a dynamic process of competing interests, competing interpretations of institutionalized norms, processes shaped by political institutions.

Fligstein (1990): “​the changing rules of the market lead to new strategies and structures → transforming the prevailing institutionalized conceptions of corporate
control”​

Question 58

Roe (1994): ​“​why the dispersed ownership and stock-market finance prevailed in the US, whereas bank-based forms of finance and corporate control emerged in Germany and Japan​?”

Answer 58

• Unique development of banking and securities market regulation in the US in the 1930s (“​the regulatory divide among systems​”).
• Political factors shaped these regulations.
• They were weaker in Japan and Germany, leading to the dominance of banks.

Roe (2003): ​“​strong social democracies widen the natural gap between managers and distant stockholders, and impede firms from developing the tools that would close up this gap​.”

Increased employee protection
+ agency costs
managers harder to control
small shareholders less likely to buy shares
concentrated ownership remains

Coevolution:​ diversity of corporate governance & historical perspective as the resulting system was not created at a single point in time. changes in one
institution may create pressure to create changes in others.
The German model ​→ emerged through incremental changes that resulted in an unintended fit between bank control & strong employee voice. ​this model
co-evolved.
- The U.S. model

Question 59

Trust & Firm Organization, Financial Markets

Answer 59

+ correlation between firm decentralization decision making of firms and trust

→ higher the trust higher the decentralization in firms
→ when you trust people in the organization this favors the decentralization of decisions within the orientation, allowing them to adapt better to alterations in the environment.

→ positive relationship, financial markets heavily rely on trust.

Question 60

Trust & Innovation:

Answer 60

→ steady & positive correlation between trust and TFP (total factor productivity → a proxy to understand the innovation level in a society) ​ → As innovations are long term projects
→ There is also a + correlation between trust and R&D

Question 61

Explain the Dynamics of trust

Answer 61

1. climate
   Ostrom (1990): “​Trust is high in ​upland regions​ where farmers must cultivate scattered plots irrigated by communally maintained ditches.

In such challenging regions, mutual trust and cooperation in all facets of life are more frequent than on flatland that can be farmed with much less coordination​”.

2. history
   Nunn and Wantchekon (2011): ​The traffic in slave labor to work plantations in the Americas introduced profound mistrust in the population

The inhabitants still reveal greater mistrust of others, including their neighbors, the members of their ethnic group, and even their own families, than the inhabitants of neighboring regions. Near Atlantic coast more distrusting then elsewhere.

3. inherited trust
   → inherited trust: from origin country: trust rises among immigrants if they move form a low trust country to a high one.

Beliefs and behaviors of immigrants are influenced by their​ countries of origin​

Attitudes and beliefs of immigrants are influenced by their ​countries of residence

Evolution of trust among the​ first and second generation of immigrants ​in European countries (Algan et al., 2011, European Social Survey)

• Level of trust of ​first generation​ immigrants correlates significantly with the level of trust in their ​country of origin.