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Culture, financial literacy, and leverage of small firms

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  • Basha, Shabeen Afsar
  • Bennasr, Hamdi
  • Goaied, Mohamed

Abstract

This study uses Inglehart’s measures of sociological culture, to examine the relationship between culture and the leverage of small and medium enterprises. Using system generalized methods of moments methodology on an unbalanced panel data of 96,349 firms over 10 years, we find that emancipative (secular) values are negatively (positively) associated with leverage through the mechanisms of trust and family borrowings, respectively. We also show that financial literacy moderates the relationship between culture and leverage. Furthermore, country bankruptcy procedures and information environment determine the extent of the interaction effect of financial literacy and culture on the debt usage by small and medium enterprises. Our study offers policy implications to financial institutions and decision-makers for the promotion of small and medium enterprises, and entrepreneurship training and development. as culture, financial literacy, and institutions play a significant role in small and medium enterprises’ financing decisions.

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  • Basha, Shabeen Afsar & Bennasr, Hamdi & Goaied, Mohamed, 2025. "Culture, financial literacy, and leverage of small firms," Research in International Business and Finance, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:riibaf:v:75:y:2025:i:c:s0275531925000157
    DOI: 10.1016/j.ribaf.2025.102759
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    More about this item

    Keywords

    Capital structure; leverage; financial literacy; culture; small firms;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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