The power of culture: how cultural tightness-looseness affects corporate misconduct

This study examines the impact of cultural tightness-looseness, an important informal institution, on corporate misconduct, using a sample of Chinese listed firms from 2009 to 2022. We find that firms located in culturally tight regions exhibit significantly less corporate misconduct. This deterrent effect operates by enhancing managerial social embeddedness, elevating whistleblowing intensity, amplifying media-driven reputational pressure, and mobilizing active stakeholder monitoring. Furthermore, this constraining effect is amplified in firms with weaker corporate governance and less-developed legal systems. These results are robust across various checks, including propensity score matching, instrumental variable estimation, alternative variable measurements, industry-year fixed effects, sample restrictions, province-level controls and clustering, and controlling for regional economic development. Further analysis reveals that the inhibitory effect of cultural tightness is especially pronounced for operational misconduct. Moreover, the deterrent impact is particularly stronger in contexts with greater media scrutiny, weaker foreign cultural influence, lower financial constraints and in state-owned enterprises. Our study enriches research on how culture shapes corporate behavior from the perspective of cultural norm strength and expands the literature on the determinants of corporate misconduct.