Journal of Corporate Finance Vol. 23 2013
How does culture influence corporate risk-taking?
Abstract
We investigate the role of national culture in corporate risk-taking. We postulate that culture influences corporate risk-taking both through its effect on managerial decision-making and through its effect on a country's formal institutions. Further, we postulate that the influence of culture is conditioned on the extent of managerial discretion as measured by earnings discretion and firm size. Using firm-level data from 35 countries and employing a hierarchical linear modeling approach to isolate the effects of firm-level and country-level variables, we show that individualism has a positive and significant association, whereas uncertainty avoidance and harmony have negative and significant associations, with corporate risk-taking. Greater earnings discretion strengthens and larger firm size weakens the association of culture with corporate risk-taking. We conclude that even in a highly globalized world with sophisticated managers, culture matters.
- DOI
- 10.1016/j.jcorpfin.2013.07.008
- Volume
- 23
- Pages
- 1-22
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref