National Culture and the Choice between Bank Debt and Public Debt

Abstract

In this study, we investigate the role of national culture in firms’ choice between bank debt and public debt. We postulate that culture influences corporate debt choice through five channels. Using a new international dataset on debt structure and a large sample of firms from 30 countries, we find that Schwartz’s cultural dimensions shape firms’ debt choice. We show that Egalitarianism has a negative and significant association with bank debt financing and that Embeddedness has a positive and significant association with it. These results hold after conducting several endogeneity and robustness tests. In addition, when using Hofstede’s cultural dimensions as alternative cultural dimensions, we find that the results are generally consistent with those obtained with Schwartz’s cultural dimensions.

Keywords: Bank debt; Public debt; National Culture

JEL Classification: G21; G32; J33; J41