The Effect of National Culture on Leverage Decisions in Emerging Markets
Abstract
This research investigates whether cultural variables explain diversity in corporate leverage in developing markets. Adaption in government borrowing, as well as macroeconomic uncertainty and financial sector expansion, play a larger effect. Individualism is highly positive connected with leverage except for short-term debt, while uncertainty-avoidance is negatively correlated with leverage except for long-term debt. We also investigate the buildup and dissipation of leverage by studying the relationship between company profitability, size, market to book, R&D, which all negatively connected while tangible assets remain positively related.
References
Barclay, M.J., Smith, C.W., The capital structure puzzle: another look at the evidence. J. Appl. Corp. Finance 12 (1999), 8-20.
Castro, P., Fernandez, M. T. T., Tapia, B. A., Miguel, A. Target Leverage and Speed of Adjustment along the Life Cycle of European Listed Firms. BRQ Business Research Quarterly (2016) 19, 188-205.
Chen, Y., Dou, P. Y., Rhee S. G., Troung. C, Veeraraghavan. M., National Culture and Corporate Cash Holdings around the World. Journal of Banking & Finance 50 (2015) 1-18.
Chow, So and Zhang, J. F. “The Effect of Cultural Heterogeneity on Cash Holdings of Multinational Business.
Chui, A.C.W., Alison, E.L., Kwok, C.C.Y., 2002. The determination of capital structure: is national culture a missing piece to the puzzle? Journal of International Business Studies 33, 99–127.
DeAngelo, H., and R. Roll. “How Stable Are Corporate Capital Structures?†Journal of Finance, 70 (2015), 373–418.
Faulkender, M.; M. J. Flannery; K. W. Hankins; and J. M. Smith. “Cash Flows and Leverage Adjustments.†Journal of Financial Economics, 103 (2012), 632–646.
Faulkender, M., and M. A. Petersen. “Does the Source of Capital Affect Capital Structure?†Review of Financial Studies, 19 (2006), 45–79.
Fischer, E. O.; R. Heinkel; and J. Zechner. “Dynamic Capital Structure Choice: Theory and Tests.†Journal of Finance, 44 (1989), 19–40.
Flannery, M., and K. Rangan. “Partial Adjustment toward Target Capital Structure.†Journal of Financial Economics, 79 (2006), 469–506.
Graham, J. R., Leary, M. T., Roberts, M. R., A Century of Capital Structure: The Leveraging of Corporate America. Journal of Financial Economics. (2014)
Hovakimian, A., Li, G., Corporate Leverage and the Dynamics of its Components. Journal of Financial and Quantitative Analysis Vol.56 (2021), 499-530.
Hovakimian, A., Li, G., In search of conclusive evidence: how to test for adjustment to target capital structure. J. Corp. Finance 17 (2011), 33-44.
La Rocca, M., La Rocca, T., Cariola, A., Capital structure decisions during a firm’s life cycle. Small Bus. Econ. 37 (2011), 107-130.
Miguel, A., Pindado, J., Determinants of capital structure: new evidence from Spanish panel data. J. Corp. Finance 7 (2001), 77-99.
Myers, S. “Determinants of Corporate Borrowing.†Journal of Financial Economics, 5 (1977), 147–175.
Myers, S.C., The capital structure puzzle. J. Finance 39 (1984), 575-592.
Saddour, K., The determinants and the value of cash holdings: evidence from French firms. Working Paper 2006-6. CEREG, pp. 1-33.
Tang, L., & Koveos, P. E. A framework to update Hofstede’s cultural value indices: Economic dynamics and institutional stability. Journal of International Business Studies, 39(2008), 1045–1063.
Titman, S., Tsyplakov, S., A dynamic model of optimal capital structure. Rev. Financ. Stud. 11 (2007), 401-451.
Titman, S., and R. Wessels. “The Determinants of Capital Structure Choice.†Journal of Finance, 43 (1988), 1–19.
Welch, I., Two common problems in capital structure research: the financial-debt-to-asset ratio and issuing activity versus leverage changes. Int. Rev. Finance 11 (2011), 1-17.
Wooldridge, J.M., Econometric Analysis of Cross Section and Panel Data (2002). The MIT Press, Cambridge.
