How does culture influence corporate risk-taking?

Kai Li (), Dale Griffin, Heng Yue () and Longkai Zhao

Journal of Corporate Finance, 2013, vol. 23, issue C, 1-22

Abstract: We investigate the role of national culture in corporate risk-taking. We postulate that culture influences corporate risk-taking both through its effect on managerial decision-making and through its effect on a country's formal institutions. Further, we postulate that the influence of culture is conditioned on the extent of managerial discretion as measured by earnings discretion and firm size. Using firm-level data from 35 countries and employing a hierarchical linear modeling approach to isolate the effects of firm-level and country-level variables, we show that individualism has a positive and significant association, whereas uncertainty avoidance and harmony have negative and significant associations, with corporate risk-taking. Greater earnings discretion strengthens and larger firm size weakens the association of culture with corporate risk-taking. We conclude that even in a highly globalized world with sophisticated managers, culture matters.

Keywords: Formal institutions; Harmony; Individualism; National culture; Corporate risk-taking; Uncertainty avoidance (search for similar items in EconPapers)
JEL-codes: G18 G31 G32 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (286)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:23:y:2013:i:c:p:1-22

DOI: 10.1016/j.jcorpfin.2013.07.008

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