Culture and Capital Structure in Small and Medium Sized Firms
34 Pages Posted: 6 Dec 2012 Last revised: 11 Jul 2015
Date Written: December 5, 2012
Employing 90,000 firm-level observations from 13 countries over a seven year period, and controlling for an extensive set of firm-level characteristics, industry effects and country-level institutional variables, we provide a conceptual framework and empirical analysis of how culture influences capital structure in SMEs. We document hitherto unreported effects. Uncertainty avoidance and individuality are negatively related with long-term debt, highlighting SME owners desire to avoid heightened business risk, reduce interference from debt providers, and maintain autonomy and independence. Negative relationships between power distance and debt suggest a more consultative role with financial institutions, facilitating greater access to debt. Policy makers should take account of the deep and powerful consequences of cultural influences when designing and implementing SME financing initiatives.
Keywords: capital structure, SME, Hofstede’s cultural values, Europe, pecking order
JEL Classification: g32
Suggested Citation: Suggested Citation