Financial distress prediction in an international context: Moderating effects of Hofstede’s original cultural dimensions

Erkki K. Laitinen and Arto Suvas

Journal of Behavioral and Experimental Finance, 2016, vol. 9, issue C, 98-118

Abstract: The objective is to investigate the influence of Hofstede’s original cultural dimensions on financial distress prediction. Empirical data consist of 1,255,768 non-failed and 22,594 failed yearly firm observations from 26 European countries. First, an overall six variable logistic regression model is estimated to predict financial distress in an international context. Second, logistic regression models including moderating (interaction) effects with each financial predictor variable are separately estimated for each cultural dimension. Empirical findings show that Hofstede’s dimensions significantly moderate the effects of many financial predictors in failure prediction. However, equity ratio (solvency) and return on assets ratio (profitability) play central roles in prediction models irrespective of moderating effects. Therefore, solvency and profitability are useful predictors of financial distress in international modeling. Due to the dominant role of the equity ratio across cultures, the contributions of moderating effects and further variables on the overall performance of prediction models are not strong.

Keywords: Financial distress; Financial ratios; National culture; Hofstede; Bankruptcy; Failure prediction (search for similar items in EconPapers)
JEL-codes: F23 F37 G33 M41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:9:y:2016:i:c:p:98-118

DOI: 10.1016/j.jbef.2015.11.003

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