Are Central European countries' financial institutions embedded?

The fall of the Iron Curtain in 1989 was one of the causes of an increased interest in the relation between economics and culture. An important idea of this literature is that social and economic systems will function properly if they are embedded in a corresponding value system. Although some studies have discussed the relevance of culture for the transition process, no one has performed a systematic analysis. This paper investigates whether the financial systems in a group of Central European transition countries correspond with the underlying values. These countries' high scores on Uncertainty Avoidance and low scores on Individualism correspond with the poor protection of shareholders' rights and the low level of stock market capitalisation relative to industrialised countries. Differences within the group of transition countries are related to differences in Power Distance and Individualism.