National Culture and Profit Reinvestment: Evidence from Small and Medium-Sized Enterprises
47 Pages Posted: 26 Feb 2014 Last revised: 24 Jun 2015
Date Written: June 23, 2015
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: Suggested Citation