National culture and the cost of debt

Chun Wai Andy Chui, Chuck C.Y. Kwok, Gaoguang Stephen Zhou

Research output: Journal article publicationJournal articleAcademic researchpeer-review

26 Citations (Scopus)

Abstract

This study investigates how Schwartz's cultural dimensions of embeddedness and mastery affect the corporate cost of debt through bankruptcy risk and sensitivity to agency activity channels. Using data from 33 countries, we find a strong and robust negative relation between embeddedness and the cost of debt. The estimated relation between mastery and the corporate cost of debt is negative and significant in most of the tests. Further analyses reveal that the development of financial intermediation and the enforcement of insider trading law moderate the relation between culture and the cost of debt. Confirming our hypotheses, we document that embeddedness is negatively related to bankruptcy risk and sensitivity to agency activity. We find that mastery is positively related to bankruptcy risk across countries as well, but this relation is weaker. We also show that mastery is positively related to sensitivity to agency activity among countries with highly leveraged firms.
Original languageEnglish
Pages (from-to)1-19
Number of pages19
JournalJournal of Banking and Finance
Volume69
DOIs
Publication statusPublished - 1 Aug 2016

Keywords

  • Agency cost
  • Bankruptcy
  • Cost of capital
  • Embeddedness
  • Mastery
  • National culture

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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