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


Author Info

  • Kai Li

    (Sauder School of Business, University of British Columbia, Vancouver, Canada)

  • Dale Griffin

    (Sauder School of Business, University of British Columbia, Vancouver, Canada)

  • Heng Yue

    (Guanghua School of Management, Peking University, Beijing, P.R. China)

  • Longkai Zhao

    (Guanghua School of Management, Peking University, Beijing, P.R. China)


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.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Journal of International Business Studies.

Volume (Year): 42 (2011)
Issue (Month): 4 (May)
Pages: 477-503

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Handle: RePEc:pal:jintbs:v:42:y:2011:i:4:p:477-503

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Cited by:
  1. Wang, Danny T. & Gu, Flora F. & Tse, David K. & Yim, Chi Kin (Bennett), 2013. "When does FDI matter? The roles of local institutions and ethnic origins of FDI," International Business Review, Elsevier, Elsevier, vol. 22(2), pages 450-465.
  2. Johansson, Anders C. & Feng, Xunan, 2013. "CEO Incentives in Chinese State-Controlled Firms," Working Paper Series 2013-27, Stockholm China Economic Research Institute, Stockholm School of Economics.
  3. Li, Kai & Griffin, Dale & Yue, Heng & Zhao, Longkai, 2013. "How does culture influence corporate risk-taking?," Journal of Corporate Finance, Elsevier, Elsevier, vol. 23(C), pages 1-22.
  4. Lievenbrück, Martin & Schmid, Thomas, 2014. "Why do firms (not) hedge? — Novel evidence on cultural influence," Journal of Corporate Finance, Elsevier, Elsevier, vol. 25(C), pages 92-106.
  5. Wang, Daphne & Esqueda, Omar A., 2014. "National cultural effects on leverage decisions: Evidence from emerging-market ADRs," Research in International Business and Finance, Elsevier, Elsevier, vol. 31(C), pages 152-177.
  6. Melnyk, Valentyna & Giarratana, Marco & Torres, Anna, 2014. "Marking your trade: Cultural factors in the prolongation of trademarks," Journal of Business Research, Elsevier, Elsevier, vol. 67(4), pages 478-485.


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