Culture and externally financed firm growth

In this paper, we provide the first firm-level evidence on the importance of culture, and its interdependence with legal (formal) institutions in affecting firms' use of external financing to fund growth. We conjecture that culture, after controlling for its macro-economic impact through political and legal institutions, has a direct micro-economic effect on firm-level growth. Using an international sample of 42,341 firms from 56 countries over the period 1989 to 2012, we find support for our hypothesis that cultural dimensions of individualism, masculinity, uncertainty avoidance and power distance affect firm's ability to overcome financial constraints, with individualism exhibiting a strong robust impact compared to the other dimensions. We further find that the link between individualism and growth is stronger in countries with low access to finance, suggesting that firms' ability to overcome financial constraints is more affected by individualism when access to finance is lower.