Cultural Diversity and Capital Structures of Multinational Firms

John Zhang

Review of Corporate Finance, 2022, vol. 2, issue 2, 295-351

Abstract: This paper examines whether and how cultural diversity within multinational firms affects their capital structures. The result shows that the higher the cultural diversity, the lower the leverage ratio. The negative relation between cultural diversity and the leverage ratio holds after controlling for firm-level determinants and well-documented country-level factors. Further analyses suggest that cultural diversity affects the capital structures of multinational firms mainly through equity issuance rather than debt reduction. In addition, cultural distance negatively affects the subsidiary debt ratio. These findings indicate that national culture plays a significant role in determining the corporate capital structure in a multinational setting.

Keywords: Cultural diversity; capital structure; multinational firms; globalization (search for similar items in EconPapers)
JEL-codes: F23 F65 G32 Z10 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:now:jnlrcf:114.00000016

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