National culture and corporate investment

Liang Shao, Chuck C Y Kwok and Ran Zhang
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Liang Shao: School of Business, Hong Kong Baptist University, Kowloon Tong, Hong Kong
Chuck C Y Kwok: Moore School of Business, University of South Carolina, Columbia, USA
Ran Zhang: Guanghua School of Management, Peking University, Beijing, P. R. China

Journal of International Business Studies, 2013, vol. 44, issue 7, 745-763

Abstract: We explore the relation between individualism and horizons and types of corporate investment, based on individualism’s implications for risk taking. We find that firms in individualistic countries invest more in long-term (risky) than in short-term (safe) assets. Moreover, the effect of individualism on long-term investment hinges on R&D: firms in individualistic countries invest more in R&D projects but not more in physical assets. To test whether risk taking is the channel through which individualism works, we employ two-stage ordinary least squares and other analyses to nullify alternative explanations, such as: (1) uncontrolled institutions determine both individualism and R&D; and (2) firms in individualistic countries invest more in R&D because they have higher investment efficiency, or pick less-risky R&D projects. We further find that individualistic firms tend to employ excess cash to increase R&D rather than increase dividends, and R&D decisions are less reliant on internal financing but more responsive to growth opportunities in individualistic countries.

Date: 2013
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