Culture and Capital Structure: What Else to the Puzzle?

Vipin Mogha () and Benjamin Williams ()
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Vipin Mogha: CleRMa - Clermont Recherche Management - ESC Clermont-Ferrand - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA [2017-2020] - Université Clermont Auvergne [2017-2020]
Benjamin Williams: CleRMa - Clermont Recherche Management - ESC Clermont-Ferrand - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA [2017-2020] - Université Clermont Auvergne [2017-2020]

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Abstract: This paper investigates four of Hofstede's cultural dimensions-individualism, masculinity, uncertainty avoidance, and long-term orientation-influence on firms' choices of short-term and long-term capital structures. Cultures influence on corporate risk-taking may drive their debt-to-equity mix based on the higher of their equity book or market value. We empirically test culture influence with a sample of 5968 firms from five industry sectors, across 33 countries, over 2009-2017. We find firms national culture influencing their choices of short-term and long-term debt to book and market value of equity. The influence is more significant on the short-term than the long-term capital structures. Furthermore, it is more significant on the short-term debt to market value of equity and on the long-term debt to book value of equity. Our robustness checks at the firm-level, country-level and sample-level confirm and reinforce our main results. These findings would provide financial analysts, investors, and creditors an in-depth understanding when comparing international firms' capital structures.

Keywords: Capital structure; National culture; Risk-taking; Debt-to-Equity; JEL Code: G34; Z10 (search for similar items in EconPapers)
Date: 2020-10-22
New Economics Papers: this item is included in nep-cwa
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Published in International Review of Financial Analysis, 2020, 73, pp.101614. ⟨10.1016/j.irfa.2020.101614⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03043112

DOI: 10.1016/j.irfa.2020.101614

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