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How does culture influence corporate risk-taking?

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  • Li, Kai
  • Griffin, Dale
  • Yue, Heng
  • Zhao, Longkai
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    Abstract

    We investigate the role of national culture in corporate risk-taking. We postulate that culture influences corporate risk-taking both through its effect on managerial decision-making and through its effect on a country's formal institutions. Further, we postulate that the influence of culture is conditioned on the extent of managerial discretion as measured by earnings discretion and firm size. Using firm-level data from 35 countries and employing a hierarchical linear modeling approach to isolate the effects of firm-level and country-level variables, we show that individualism has a positive and significant association, whereas uncertainty avoidance and harmony have negative and significant associations, with corporate risk-taking. Greater earnings discretion strengthens and larger firm size weakens the association of culture with corporate risk-taking. We conclude that even in a highly globalized world with sophisticated managers, culture matters.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 23 (2013)
    Issue (Month): C ()
    Pages: 1-22

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    Handle: RePEc:eee:corfin:v:23:y:2013:i:c:p:1-22

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    Web page: http://www.elsevier.com/locate/jcorpfin

    Related research

    Keywords: Formal institutions; Harmony; Individualism; National culture; Corporate risk-taking; Uncertainty avoidance;

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    Cited by:
    1. Lievenbrück, Martin & Schmid, Thomas, 2014. "Why do firms (not) hedge? — Novel evidence on cultural influence," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 92-106.

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