Cultural Preferences and the Choice between Formal and Informal Financing

44 Pages Posted: 9 Jun 2017

See all articles by Mascia Bedendo

Mascia Bedendo

University of Bologna - Department of Management

Emilia Garcia-Appendini

University of Zurich - Department of Banking and Finance

Linus Siming

Free University of Bozen-Bolzano - Faculty of Economics and Management

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Date Written: May 1, 2017

Abstract

This paper documents significant differences in the financing structure of small firms with managers of diverse cultural backgrounds. To separate the effect of culture from other factors that affect the financing structure of firms, we exploit cultural heterogeneity within a geographical area with shared regulations, institutions, and macroeconomic cycles. Our findings suggest that there exist significant differences in the culturally embedded preferences towards 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 industrial sectors, trading partners, and headquarters location.

Keywords: Managerial cultural origin, Informal financing, Trade credit, Small firm financing

JEL Classification: Z10, G32, M14

Suggested Citation

Bedendo, Mascia and Garcia-Appendini, Emilia and Siming, Linus, Cultural Preferences and the Choice between Formal and Informal Financing (May 1, 2017). University of St. Gallen, School of Finance Research Paper No. 2017/07, Available at SSRN: https://ssrn.com/abstract=2983014 or http://dx.doi.org/10.2139/ssrn.2983014

Mascia Bedendo

University of Bologna - Department of Management ( email )

Via Capo di Lucca 34
Bologna, Bologna 40126
Italy

Emilia Garcia-Appendini (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Linus Siming

Free University of Bozen-Bolzano - Faculty of Economics and Management ( email )

Via Sernesi 1
39100 Bozen-Bolzano (BZ), Bozen 39100
Italy

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