Culture, Openness, and Finance Revisited

Abstract

Purpose: In a paper published titled “Culture, Openness, and Finance” in the Journal of Financial Economics which has been cited over 2000 times, the authors, Stulz and Williamson (2003) (hereafter S&W), find that cultural differences, proxied by religion and language, impact shareholder rights, creditor rights, and investor protection, and also include other control variables like trade openness, income, and legal system variables. This paper revisits the S&W study and innovates across multiple margins.

Design/methodology/approach: We use econometric methods similar to those of S&W to replicate their results and innovate with new variables and methods.

Findings: In general, some of our findings are quite different from those of S&W. Like S&W, culture matters less when openness is factored in. We also find that religious traditions play a greater role in lowincome countries.

Originality/value: This paper revisits the S&W study and innovates across multiple margins. We also include a new contribution to the literature examining how the interaction of culture and low-income countries affects finance.

Policy Implications: Policymakers should prioritize investor protection reforms that are adapted to the religious and cultural contexts of each jurisdiction. International financial institutions and development agencies should incorporate cultural diagnostics—such as religious composition and trust indices—into their governance assessments and reform recommendations. This culturally attuned approach can lead to more sustainable financial systems globally.