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Cultural Diversity and Capital Structures of Multinational Firms

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  • John F. Zhang

Abstract

This paper examines whether and how cultural diversity within multinational firms affects their capital structures. The result shows that the higher the cultural diversity, the lower the leverage ratio. The negative relation between cultural diversity and the leverage ratio holds after controlling for firm-level determinants and well-documented country-level factors. Further analyses suggest that cultural diversity affects the capital structures of multinational firms mainly through equity issuance rather than debt reduction. In addition, cultural distance negatively affects the subsidiary debt ratio. These findings indicate that national culture plays a significant role in determining the corporate capital structure in a multinational setting.

Suggested Citation

  • John F. Zhang, 2022. "Cultural Diversity and Capital Structures of Multinational Firms," Review of Corporate Finance, now publishers, vol. 2(2), pages 295-351, May.
    • Handle: RePEc:now:jnlrcf:114.00000016
    DOI: 10.1561/114.00000016
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    Citations

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    Cited by:

    1. Kang, Youngho & Kim, Ryoonhee & Whang, Unjung, 2023. "International knowledge transfers and capital structure of multinational affiliates: Evidence from expatriate managers as the transfer agents," Journal of Multinational Financial Management, Elsevier, vol. 68(C).
    2. Tiemei Li & Michel Magnan & Yaqi Shi, 2022. "Governance tensions in MNCs’ accounting quality," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(8), pages 1641-1669, October.
    3. Zhang, John Fan & Wang, Yang & Du, Qingjie, 2024. "The impact of cultural distance on fund transfers in the internal capital market," Journal of Banking & Finance, Elsevier, vol. 165(C).
    4. Haifeng Hu & Minjing Qi, 2022. "New Evidence on National Culture and Corporate Financing: Does Institutional Quality Matter?," Sustainability, MDPI, vol. 14(19), pages 1-24, October.
    5. So, Jacky Yuk-chow & Zhang, John Fan, 2022. "The effect of cultural heterogeneity on cash holdings of multinational businesses," Research in International Business and Finance, Elsevier, vol. 61(C).

    More about this item

    Keywords

    Cultural diversity; capital structure; multinational firms; globalization;
    All these keywords.

    JEL classification:

    • Z10 - Other Special Topics - - Cultural Economics - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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