Languages and Corporate Savings Behavior
47 Pages Posted: 27 Jan 2015 Last revised: 15 Jul 2017
Date Written: July 12, 2017
Speakers of strong future time reference (FTR) languages (e.g., English) are required to grammatically distinguish between future and present events, while speakers of weak-FTR languages (e.g., Chinese) are not. We hypothesize that speaking about the future in the present tense may result in the belief that adverse credit events are more imminent. Consistent with such a linguistic hypothesis, weak-FTR language firms are found to have higher precautionary cash holdings. We report additional supportive results from changes in the relative importance of different languages in a country's business domain, evidence from within one country with several distinct languages, and results related to changes following a severe financial crisis. Our evidence introduces a new explanation for heterogeneity in corporate savings behavior, provides insights about belief formation in firms, and adds to research on the effects of languages on economic outcomes.
Keywords: Corporate savings behavior, Linguistic hypothesis
JEL Classification: G02, G32, D83, Z13
Suggested Citation: Suggested Citation