Overconfidence and optimism: The effect of national culture on capital structure

Ron Christian Antonczyk and Astrid Juliane Salzmann

Research in International Business and Finance, 2014, vol. 31, issue C, 132-151

Abstract: This study assesses whether variations in capital structure across countries can be explained by cultural traits. We analyze capital structure choices of firms in 42 countries and provide evidence that these decisions are affected by the degree of individualism of the country where the firm is located. We assert that managers in countries with high level of individualism exhibit strong optimism and overconfidence which cause an upward bias in perception of supportable debt ratios. Our results are robust to controlling for other firm- and country specific determinants of capital structure choices and to using alternative model specifications and estimation techniques.

Keywords: Capital structure; Individualism; Behavioral bias; National culture (search for similar items in EconPapers)
JEL-codes: G24 O57 Z1 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:31:y:2014:i:c:p:132-151

DOI: 10.1016/j.ribaf.2013.06.005

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