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Culture, agency costs, and governance: International evidence on capital structure

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  • Fauver, Larry
  • McDonald, Michael B.

Abstract

We examine social characteristics (individualism and risk aversion) and their interaction with firm governance and capital structure across the G20 countries from 1995 to 2009 using roughly 13,000 firms. We show that higher levels of individualism are associated with increased firm use of debt and lower cost of capital, whereas higher risk aversion has the opposite effects. Better firm-level governance substantially reduces these cultural effects, as does larger firm size, and less research-intensity at the firm. The results show that capital structure in emerging markets is considerably less affected by national culture relative to developed countries. To address endogeneity concerns, we show our results hold after using a propensity score matching procedure.

Suggested Citation

  • Fauver, Larry & McDonald, Michael B., 2015. "Culture, agency costs, and governance: International evidence on capital structure," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 1-23.
  • Handle: RePEc:eee:pacfin:v:34:y:2015:i:c:p:1-23
    DOI: 10.1016/j.pacfin.2015.05.001
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    Cited by:

    1. Cao, Chunfang & Xia, Changyuan & Chan, Kam C., 2016. "Social trust and stock price crash risk: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 46(C), pages 148-165.
    2. repec:bla:acctfi:v:57:y:2017:i:4:p:1101-1125 is not listed on IDEAS
    3. repec:eee:finlet:v:22:y:2017:i:c:p:90-94 is not listed on IDEAS
    4. Alves, Paulo, 2018. "Cash holdings around the world: Financial crisis, culture and shareholder rights," MPRA Paper 89861, University Library of Munich, Germany, revised 2018.
    5. repec:eee:jfinec:v:125:y:2017:i:1:p:120-142 is not listed on IDEAS
    6. repec:taf:applec:v:49:y:2017:i:44:p:4501-4520 is not listed on IDEAS
    7. Linnenluecke, Martina K. & Chen, Xiaoyan & Ling, Xin & Smith, Tom & Zhu, Yushu, 2016. "Emerging trends in Asia-Pacific finance research: A review of recent influential publications and a research agenda," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 66-76.

    More about this item

    Keywords

    Capital structure; Culture; Agency costs; Governance; International;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F39 - International Economics - - International Finance - - - Other

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