The Influence of National Culture on the Capital Structure of SMEs

49 Pages Posted: 17 Jul 2015 Last revised: 4 Aug 2015

See all articles by Gillian Fairbairn

Gillian Fairbairn

University of Stirling - Department of Accounting and Finance

Darren Henry

La Trobe University - Department of Economics and Finance; Financial Research Network (FIRN)

Ioannis Tsalavoutas

University of Glasgow - Accounting and Finance Group

Date Written: August 3, 2015

Abstract

Variations in entrepreneurial attitudes towards risk and control imply a link between the capital structure of SMEs and national culture. We investigate this unexplored relationship, using two of Schwartz’s latest cultural dimensions (Hierarchy and Embeddedness) and a large panel data sample from seven countries, covering the period 2006 to 2008. Our results show that Hierarchy is negatively related to debt levels not only for the full sample, but also across the sub-samples of micro, small and medium firms. This suggests that managers who operate in cultures where wealth, social power, and authority are important cultural values use less debt. Embeddedness is also negatively related to debt levels of small and medium firms. This suggests that relatively-smaller companies in cultures which inter alia value family security and self-discipline tend to use less debt. Further testing shows that national culture can affect long-term, short-term debt, and the choice between the two differently. While the results for Hierarchy show a consistent, negative relationship between this dimension and both types of debt, the results for Embeddedness vary depending on the size of the firm and the duration of the debt source. Our findings contribute to prior literature by providing empirical evidence of national culture’s influence on the capital structure of SMEs through the manager’s behaviour towards risk and control.

Keywords: Capital structure, SMEs, Culture

JEL Classification: G32; Z10

Suggested Citation

Fairbairn, Gillian and Henry, Darren and Tsalavoutas, Ioannis, The Influence of National Culture on the Capital Structure of SMEs (August 3, 2015). Available at SSRN: https://ssrn.com/abstract=2631554 or http://dx.doi.org/10.2139/ssrn.2631554

Gillian Fairbairn

University of Stirling - Department of Accounting and Finance ( email )

Stirling, Scotland FK9 4LA
United Kingdom

Darren Henry

La Trobe University - Department of Economics and Finance ( email )

Department of Economics and Finance
La Trobe Business School
Bundoora 3086 Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Ioannis Tsalavoutas (Contact Author)

University of Glasgow - Accounting and Finance Group ( email )

Glasgow, Scotland G12 8QQ
United Kingdom

HOME PAGE: http://www.gla.ac.uk/schools/business/staff/yannistsalavoutas/

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