National culture and capital structure decisions: Evidence from foreign joint ventures in China

By Kai Li, Dale W. Griffin, Heng Yue, Longkai Zhao. 2011

161 citations recorded by the source corpus.

We investigate the role of firms’ country of origin in financial leverage decisions. Foreign joint ventures in China face a common set of country-level formal institutional constraints, but vary in the cultural values they bring from their countries of origin. We hypothesize that national culture enters the joint optimization process, leading to foreign joint ventures’ leverage decisions, and that it affects leverage decisions both directly and indirectly. Employing a hierarchical linear model distinguishing firm-level from country-level variables, and a data set covering over 8000 foreign joint ventures in China from 32 different countries and regions in the year 2002, we find that mastery has negative and significant direct effects on foreign joint ventures’ leverage and short-term debt decisions, and a positive and significant direct effect on the likelihood of foreign joint ventures having long-term debt. The indirect effects of mastery on leverage decisions sometimes reinforce and sometimes offset the direct effects. Embeddedness has no significant direct effect on foreign joint ventures’ leverage decisions, but exerts its influence entirely through indirect effects. Finally, the economic significance analysis of the total effects suggests that national culture has significant explanatory power in the leverage decisions of foreign joint ventures in China.

Subfields: Accounting

View Paper: https://www.semanticscholar.org/paper/3cec788df557a5d4f9ec96646166cf9ddf373c67

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Citations in the corpus

• When does FDI matter? The roles of local institutions and ethnic origins of FDI (2013, background): “…setting.3 As the institutional development in China is unbalanced across regions and disparate in multiple dimensions, the NERI index is widely used to capture provincial differences in institutional development over time (Chen et al., 2009; Du et al., 2008; Gao et al., 2010; Li et al., 2011).”