National culture and capital structure decisions: Evidence from foreign joint ventures in China
AbstractWe 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Palgrave Macmillan in its journal Journal of International Business Studies.
Volume (Year): 42 (2011)
Issue (Month): 4 (May)
Contact details of provider:
Web page: http://www.palgrave-journals.com/
Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Melnyk, Valentyna & Giarratana, Marco & Torres, Anna, 2014. "Marking your trade: Cultural factors in the prolongation of trademarks," Journal of Business Research, Elsevier, vol. 67(4), pages 478-485.
- 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.
- 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, vol. 22(2), pages 450-465.
- Li, Kai & Griffin, Dale & Yue, Heng & Zhao, Longkai, 2013. "How does culture influence corporate risk-taking?," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 1-22.
- Wang, Daphne & Esqueda, Omar A., 2014. "National cultural effects on leverage decisions: Evidence from emerging-market ADRs," Research in International Business and Finance, Elsevier, vol. 31(C), pages 152-177.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elizabeth Gale).
If references are entirely missing, you can add them using this form.