Managers’ Cultural Origin and Corporate Response to an Economic Shock
56 Pages Posted: 3 Feb 2022 Last revised: 4 Apr 2023
Date Written: October 24, 2022
We exploit the exogenous Covid-19 shock in a bicultural area of Italy to identify cultural differences in the way companies respond to economic shocks. Firms with managers of diverse cultural backgrounds resort to different forms of government aid, diverge in their investment decisions, and have different growth rates. These findings are consistent with cultural differences in time preferences and debt aversion. Specifically, we find that the response of managers belonging to a more long-term oriented culture is characterized by a lower recourse to debt, more investments and higher growth rates. Overall, our results show that the cultural origin of managers significantly affects firms’ reaction to economic shocks and real economic outcomes.
Keywords: Corporate financing; Corporate investment; Culture; Covid-19
JEL Classification: G32, G33, M14, Z10
Suggested Citation: Suggested Citation