The Determination of Capital Structure: Is National Culture a Missing Piece to the Puzzle?

By A. Chui, A. E. Lloyd, C. Kwok. 2002

479 citations recorded by the source corpus.

Why does knowing the nationality of the company help predict its financial leverage? Differences in institutional backgrounds provide only a partial answer to this question. This study suggests that national culture affects corporate capital structures. Empirical hypotheses, drawn from financial models and cross-cultural psychology, are tested against a sample of 5591 firms across 22 countries. Results show that countries with high scores on the cultural dimensions of “conservatism” and “mastery” tend to have lower corporate debt ratios. The effects are strong and remain significant even after accounting for differences in economic performance, legal systems, financial institutions, and some other well-known determinants of debt ratios.

Subfields: Accounting, Demography

View Paper: https://www.semanticscholar.org/paper/7a3f6dccd7f643e7abd5c877096b3cfe1e4bd5a8

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Citations in the corpus

Comparing capitalisms: understanding institutional diversity and its implications for international business (2008, background): “For example, Chui, Lloyd, and Kwok (2002) argue that high levels of corporate debt are negatively related to a country’s level of Schwartz’s conservatism and mastery values.”
National culture and corporate investment (2013, background): “…taking is a rationale that may integrate previous findings on individualism and different facets of corporate finance, including capital structure (Chui et al., 2002), dividend policy (Shao et al., 2010), earnings management (Han et al., 2010), and operating performance volatility (Li et al.,…”
Capital Structure and Corporate Performance in Nigeria Petroleum Industry: Panel Data Analysis (2010, background): “…at similar conclusion includes (Rajan and Zingales, 1995; Wald, 1999; Champion, 1999) Also, empirical studies by (Ross, 1977; Noe, 1988; Israel, 1992; Demirguc-Kunt and Maksimovic, 1999; Andy et al., 2002) confirmed that there is a positive correlation between leverage and the value of the firm.”
Comparative and International Corporate Governance (2010, background): “For example, Chui, Lloyd, and Kwok ( 2002 ) rely on culture to account for cross‐national variations in financial leverage after controlling for economic performance, legal systems, and financial institutions explanations.”
Why do national GAAP differ from IAS? The role of culture (2005, methodology): “Schwartz’s (1994) cultural dimensions of values have recently been used in international accounting (Hope, 2003) or finance (Chui et al., 2002) research as a useful complement to Hofstede’s model.”
National culture and corporate debt maturity (2012, methodology): “For example, Chui et al. (2002) find a significant relationship between national culture and corporate debt ratio even when considering differences in economic performance, legal systems, and financial development.”
National culture and capital structure decisions: Evidence from foreign joint ventures in China (2011, methodology): “Indeed, Chui, Lloyd, and Kwok (2002) identify cross-country differences in the capital structure decisions of domestic firms that are consistent with the predictions of cultural theories, and find that these differences remain significant even when firm- and country-level factors are accounted for.”
National Culture and Corporate Cash Holdings around the World (2015, methodology): “Other studies have also documented that cultural differences affect capital structure (Chui et al., 2002), dividend payout policy (Shao et al., 2010), growth and innovation (Gorodnichenko and Roland, 2010), and earnings quality (Kanagaretnam et al., 2011).”
The translation of corporate governance changes across national cultures: the case of Germany (2005, background): “Other responses propose different cultural dimensions for the purpose of measurement (Trompenaars, 1993; Schwartz, 1994; Chui, Lloyd and Kwok, 2002), and it has been claimed that national cultures are simply informal institutions that influence other societal structures (North, 1990; Hill, 1995).”