The impact of cultural distance on fund transfers in the internal capital market

John Zhang, Yang Wang and Qingjie Du

Journal of Banking & Finance, 2024, vol. 165, issue C

Abstract: This paper examines how cultural distance affects fund transfers in the internal capital market of multinational firms. The results show that a larger cultural distance significantly reduces internal fund transfers to foreign subsidiaries. These results are robust to alternative measures of cultural distance and different econometric specifications. External shocks do not affect the results. Further analysis shows that the negative cultural impact is driven mainly by the dimensions of power distance, individualism, and uncertainty avoidance. Furthermore, the effect of cultural distance on internal fund transfers is independent of subsidiary productivity, and a larger cultural distance exacerbates the negative impact of corporate diversification on firm value. Overall, our findings highlight the important role that culture plays in multinationals’ global operations.

Keywords: Cultural distance; Multinationals; Internal capital market; Fund transfer (search for similar items in EconPapers)
JEL-codes: D24 F23 F30 Z10 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:165:y:2024:i:c:s0378426624001419

DOI: 10.1016/j.jbankfin.2024.107224

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