Our primary contribution to the finance literature is the introduction of folklore narratives as a major factor in influencing corporate outcomes. Using the initial public offering (IPO) underpricing as the main focus, we demonstrate that folklore narratives depicting lower tolerance toward antisocial behavior are associated with lower IPO underpricing. The relation between folklore narratives and IPO pricing is independent of indicators of trust, religion, culture, societal preferences, or institutional democracy. This relation is weaker in countries with a more transparent information environment and following reforms that improve disclosure and corporate governance. Folklore narratives on punishment for antisocial behavior are also related to enhanced information disclosure, lower agency problems, better long-term performance for IPO firms, higher proceeds raised and free float, and overall IPO activity in the market. Collectively, we show that informal institutions, such as folklore narratives, exert a strong influence on IPO outcomes globally.

This paper examines whether cultural dimensions explain the variation in corporate cash holdings around the world as well as within the United States. We establish four major findings. First, in an international setting, corporate cash holdings are negatively associated with individualism and positively associated with uncertainty-avoidance. Second, individualism and uncertainty avoidance influence the precautionary motive for holding cash. Third, firms in individualistic states in the United States hold less cash than firms in collectivistic states. Fourth, we show that individualism is positively related to the firm’s capital expenditures, acquisitions, and repurchases while uncertainty avoidance is negatively related. Our findings remain unchanged after controlling for governance factors, firm attributes, and country characteristics.