Effect of country governance on firm performance

Abstract

This study examines the effect of country-level governance quality, moderated by culture, on firm performance. The sample included data from 2,511 publicly-traded companies from nine countries from 2009 to 2018, totaling 15,981 firm-year observations. The data to estimate firm performance were collected from the Refinitiv database, while metrics for country governance and cultural dimensions were obtained from the World Bank and Hofstede Insights, respectively. Multiple linear regression models were used to analyze the relationship between country-level governance indicators and firm performance, including the moderating role of culture. The main results showed that governance indicators have a positive and statistically significant relationship with the performance of the analyzed firms. In most of the estimated models, culture has shown to have a positive moderating effect on the relationship between country governance and performance. This research provides evidence that the governance environment in which firms operate influences their performance, suggesting that managers’ knowledge about the specific organizational environment of regions or countries is vital in the corporate decision-making process.