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Effects of culture on firm risk-taking: a cross-country and cross-industry analysis

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  • Roxana Mihet

Abstract

This paper investigates the effects of national culture on firm risk-taking, using a comprehensive dataset covering 50,000 firms in 400 industries in 51 countries. Risk-taking is found to be higher for domestic firms in countries with low uncertainty aversion, low tolerance for hierarchical relationships, and high individualism. Domestic firms in such countries tend to take substantially more risk in industries which are more informationally opaque (e.g., finance, mining, oil refinery, IT). Risk-taking by foreign firms is best explained by the cultural norms of their country of origin. These results hold even after controlling for legal constraints, insurance safety nets, and economic development. Copyright Springer Science+Business Media New York 2013

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  • Roxana Mihet, 2013. "Effects of culture on firm risk-taking: a cross-country and cross-industry analysis," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 37(1), pages 109-151, February.
    • Handle: RePEc:kap:jculte:v:37:y:2013:i:1:p:109-151
    DOI: 10.1007/s10824-012-9186-2
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    More about this item

    Keywords

    National culture; Corporate risk-taking; Industry opacity; G32; G34; L20; N20; M14; D8;
    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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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