Publication Type

Journal Article

Publication Date

9-2010

Abstract

We investigate the role of firms’ country of origin in financial leverage decisions using data on foreign joint ventures in China. We hypothesize that national culture enters the joint optimization process leading to foreign joint ventures’ leverage decisions and that it affects leverage decisions both directly and indirectly. Using cultural values of mastery and embeddedness to explain country of origin effects, we find that mastery has negative and significant direct effects on foreign joint ventures’ leverage and short-term debt decisions, and a positive and significant direct effect on the likelihood of foreign joint ventures’ having long-term debt. The indirect effects of mastery on leverage decisions sometimes reinforce and sometimes offset the direct effects. Embeddedness has no significant direct effect on foreign joint ventures’ leverage decisions, but exerts its influence entirely through indirect effects. Finally, the economic significance analysis of the total effects suggests that national culture has significant explanatory power in the leverage decisions of foreign joint ventures in China.

Keywords

Country of Origin, Cultural Values, Embeddedness, Foreign Direct Investments, Leverage, Mastery

Discipline

Accounting | Sociology of Culture

Research Areas

Accounting Information System

Publication

Journal of International Business Studies

ISSN

0047-2506

Identifier

10.2139/ssrn.1676900

Publisher

Palgrave Macmillan

Additional URL

http://doi.org/10.2139/ssrn.1676900

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