Corporate governance and subjective well-being

Abstract

The results from a cross-country empirical analysis show that corporate governance and ethics are linked to national scores of subjective well-being. This impact is over and above the effect that corporate governance has on national income, suggesting that people value corporate governance for additional reasons besides its economic impact.

Keywords:

• well-being
• corporate ethics
• corporate governance
• varieties of capitalism

JEL Classification:

• G30
• I30
• P10

Notes

¹ Satisfaction with Life (SWL) is a national average score, with individual responses scaled from 1 (dissatisfied) to 10 (satisfied) and is from the fifth wave (2005–2007) of the World Value Survey (WVS) and fourth wave (2008) of the European Value Survey (EVS). The corporate variables are from Kaufmann (2004) and indicate the share of enterprises in the country that gave satisfactory ratings (5, 6, 7) to questions on corporate governance and ethics. The variables in the Corporate Governance Index (CGI) are based on answers to questions concerning the protection of minority shareholders, quality of training, willingness to delegate authority and nepotism. The Corporate Ethics Index (CEI) is composed of two components. The corporate illegal corruption component is constructed from questions on corporate ethics, illegal political funding, state capture cost, frequency of bribery in procurement and corruption in banking. The corporate legal corruption component is constructed from questions concerning legal political funding and undue political influence. All indices are scaled from 1 to 100 with higher values showing higher ethical standards. The respective correlation coefficients are 0.42 and 0.47. Single variable regressions of SWL on CGI and SWL on CEI give positive coefficients at a 1% significance level.

² The income variable is in log form to capture the diminishing marginal utility of money. Income is the country's per capita Gross Domestic Product (GDP) measured in 2000 USD from the Online World Development Indicators, World Bank (2010), and corresponds to the WVS/EVS year. Trust is the fraction of respondents that indicated that ‘most people can be trusted’ (0–1 ascending); choice and control is the national average score, with responses scaled from 1 (none) to 10 (a great deal); and attitudes towards income inequality is a national average score, with individual responses scaled from 1 (income should be more equal) to 10 (we should have large income differences as incentives). Confidence in major companies/confidence in labour/trade unions is the respective fraction of respondents that indicated ‘a great deal’ and ‘quite a lot’ of confidence. Attitudes towards competition is a national average score, with individual responses scaled from 1 (competition is good) to 10 (competition is harmful) (WVS, 2009; EVS, 2011).