National culture and the cost of debt

Andy C.W. Chui*, Chuck C.Y. Kwok, Gaoguang ZHOU

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    48 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

    Scopus Subject Areas

    • Finance
    • Economics and Econometrics

    User-Defined Keywords

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

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