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This study addresses a pivotal theoretical and empirical lacuna in corporate governance literature: the unresolved tension between formal governance structures and the informal cultural institutions that surround them. While governance codes prescribe board diversity and independence, their effectiveness varies across cultures. We theorize this inconsistency stems from power distance. To test this, we compare banking sectors in Indonesia and Malaysia, two countries with similar formal governance mandates but divergent power distance scores. Utilizing an original, unbalanced panel dataset from 33 publicly listed banks in Indonesia (2021–2022) and Malaysia (2020–2024), yielding 84 bank-year observations, we address methodological concerns by estimating a hybrid model with Driscoll–Kraay standard errors. The findings are striking: board gender diversity and board independence significantly improve ESG disclosure in Indonesia’s moderate power distance context, but have null effects in Malaysia’s high power distance environment. Statistical tests indicate that power distance negatively and significantly moderates these relationships. This result provides strong evidence of institutional decoupling, where informal cultural norms neutralize formally adopted governance structures. This research contributes uniquely to banking literature by establishing cultural context as a boundary condition for governance effectiveness, challenges the one-size-fits-all approach and calling for context-sensitive adaptations of international sustainability standards.
Purwanti et al. (Mon,) studied this question.