Cultural Preferences and the Choice between Formal and Informal Financing
Emilia Garcia-Appendini () and
No 1707, Working Papers on Finance from University of St. Gallen, School of Finance
This paper documents significant differences in the financing structure of small firms with managers of diverse cultural backgrounds. To separate the effect of culture from other factors that affect the financing structure of firms, we exploit cultural heterogeneity within a geographical area with shared regulations, institutions, and macroeconomic cycles. Our findings suggest that there exist significant differences in the culturally embedded preferences towards the use of formal and informal sources of financing (bank loans and trade credit). Our results are robust to alternative explanations based on potential differences in credit constraints and in the distribution of cultural origins across industrial sectors, trading partners, and headquarters location.
Keywords: Managerial cultural origin; Informal financing; Trade credit; Small firm financing (search for similar items in EconPapers)
JEL-codes: G32 M14 Z10 (search for similar items in EconPapers)
Pages: 43 pages
New Economics Papers: this item is included in nep-cfn and nep-iue
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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2017:07
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