Institutional Distance and Subsidiary Debt: The Spillover Effect of Home Country Institutional Quality

38 Pages Posted: 18 Mar 2020

See all articles by Yan Du

Yan Du

EDHEC Business School

Vanja Piljak

University of Vaasa - Department of Accounting and Finance

Milos Vulanovic

EDHEC Business School

Date Written: February 21, 2020

Abstract

This study examines the spillover effects of home country institutional and cultural characteristics on the subsidiaries operating in France while they are in the process of making capital structure choices and debt maturity choices. We document that while subsidiaries financing choices are partially explained by standard determinants, at the same time, these choices are impacted by cultural distance factors such as economic, financial, and political distance. Namely, cultural distance is one of the essential determinants of the long-term debt proportion in the total amount of debt used for the financing of foreign subsidiaries in France.

Keywords: Capital structure, Debt maturity, Institutional distance, Liability of foreignness, Subsidiaries financing

JEL Classification: G15, G30, G32

Suggested Citation

Du, Yan and Piljak, Vanja and Vulanovic, Milos, Institutional Distance and Subsidiary Debt: The Spillover Effect of Home Country Institutional Quality (February 21, 2020). Available at SSRN: https://ssrn.com/abstract=3530824 or http://dx.doi.org/10.2139/ssrn.3530824

Yan Du

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

Vanja Piljak

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

P.O. Box 700
FIN-65101 Vaasa, FI-65101
Finland

Milos Vulanovic (Contact Author)

EDHEC Business School ( email )

24, avenue Gustave Delory
CS 50411
Roubaix, 59057
France

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