The Norm Theory of Capital Structure: International Evidence
International Review of Finance, 2013, Vol 13 (1), pp. 111-135
36 Pages Posted: 17 Nov 2011 Last revised: 23 Jul 2013
Date Written: May 30, 2012
Akerlof (2007) proposes that the norms of decision makers can bridge the gap between New Classical economic theories and conflicting empirical evidence. We apply his framework to cross-country capital structure decision making and propose a norm theory of capital structure. Consistent with its predictions, we find that two principal components that represent the manager-subordinate relationship and the manager-environment relationship in a national culture are significantly and negatively related to the median leverage ratio at the country level. This study is among the first to provide a direct link between national culture and capital structure as made operational through managerial norms.
Keywords: national culture, capital structure, leverage, managerial norms, norm theory of capital structure
JEL Classification: G15, G32
Suggested Citation: Suggested Citation