Cultural Preferences and Firm Financing Choices
Forthcoming in Journal of Financial and Quantitative Analysis
61 Pages Posted: 3 Jun 2017 Last revised: 2 Feb 2019
Date Written: September 18, 2018
We document significant differences in the financing structure of small firms with managers of diverse cultural backgrounds. To isolate the effect of culture, we exploit cultural heterogeneity within a geographical area with shared regulations, institutions, and macroeconomic cycles. Our findings suggest that there exist significant cultural differences in the preference towards debt funding and in the use of formal and informal sources of financing (bank loans and trade credit). Our results are robust to alternative explanations based on potential differences in credit constraints and in the distribution of cultural origins across industries, trading partners, and headquarters location.
Keywords: Managerial cultural origin; Small firm financing; Trade credit
JEL Classification: Z10, G32, M14
Suggested Citation: Suggested Citation