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The role of informal institutions in corporate governance: Brazil, Russia, India, and China compared

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  • Saul Estrin
  • Martha Prevezer
Abstract
This paper argues that the role of informal institutions as well as formal ones is central to understanding the functioning of corporate governance. We focus on the four largest emerging economies: Brazil, Russia, India, and China—commonly referred to as the BRIC countries. Our analysis is based on the Helmke and Levitsky framework of informal institutions and focuses on two related aspects of corporate governance: firm ownership structures and property rights; and the relationship between firms and external investors. We argue that for China and some states of India, “substitutive” informal institutions, whereby informal institutions substitute for and replace ineffective formal institutions, are critical in creating corporate governance leading to enhanced domestic and foreign investment. In contrast, Russia is characterized by “competing” informal institutions whereby various informal mechanisms of corporate governance associated with corruption and clientelism undermine the functioning of reasonably well set-out formal institutions relating to shareholder rights and relations with investors. Finally Brazil is characterized by “accommodating” informal institutions which get around the effectively enforced but restrictive formal institutions and reconcile varying objectives that are held between actors in formal and informal institutions. Copyright Springer Science+Business Media, LLC 2011

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  • Saul Estrin & Martha Prevezer, 2011. "The role of informal institutions in corporate governance: Brazil, Russia, India, and China compared," Asia Pacific Journal of Management, Springer, vol. 28(1), pages 41-67, March.
    • Handle: RePEc:kap:asiapa:v:28:y:2011:i:1:p:41-67
    DOI: 10.1007/s10490-010-9229-1
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    More about this item

    Keywords

    Institutions (informal and formal); Corporate governance; Shareholder rights; Suppliers of finance; Emerging economies; BRIC; M21; L21; P52;
    All these keywords.

    JEL classification:

    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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