National Culture and Profit Reinvestment: Evidence from Small and Medium-Sized Enterprises

47 Pages Posted: 26 Feb 2014 Last revised: 24 Jun 2015

See all articles by Sadok El Ghoul

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Omrane Guedhami

University of South Carolina - Moore School of Business

Chuck C.Y. Kwok

University of South Carolina - Darla Moore School of Business

Liang Shao

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences

Date Written: June 23, 2015

Abstract

We examine the role of national culture — an important informal institution — in the profit reinvestment decisions of small firms in emerging markets. Prior economic development literature focuses on formal institutions as determinants of growth. However, in emerging markets where formal institutions are less developed, informal institutions should have more of a direct versus indirect impact through formal institutions. We find that Schwartz’s cultural dimensions of Embeddedness and Hierarchy negatively affect profit reinvestment, and that access to external financing (strength of property rights) is more important for reinvestment decisions in countries with low (high) Embeddedness and Hierarchy.

Keywords: National Culture, Profit Reinvestment, Small Firms, Emerging Markets, Economic Development

JEL Classification: G32; O43

Suggested Citation

El Ghoul, Sadok and Guedhami, Omrane and Kwok, Chuck C.Y. and Shao, Liang, National Culture and Profit Reinvestment: Evidence from Small and Medium-Sized Enterprises (June 23, 2015). Available at SSRN: https://ssrn.com/abstract=2401487 or http://dx.doi.org/10.2139/ssrn.2401487

Sadok El Ghoul (Contact Author)

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Chuck C.Y. Kwok

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-777-3606 (Phone)
803-777-3609 (Fax)

Liang Shao

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences ( email )

Hong Kong

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