Publication Type

Journal Article

Publication Date

1-2013

Abstract

We investigate the role of national culture in corporate risk-taking. We postulate that culture influencescorporate risk-taking both through its effect on managerial decision-making and through its effect on acountry’s formal institutions. Further, we postulate that the influence of culture is conditioned on theextent of managerial discretion as measured by earnings discretion and firm size. Using firm-level datafrom 35 countries and employing a hierarchical linear modeling approach to isolate the effects of firmleveland country-level variables, we show that individualism has a positive and significant association,whereas uncertainty avoidance and harmony have negative and significant associations, with corporaterisk-taking. Greater earnings discretion strengthens and larger firm size weakens the association of culturewith corporate risk-taking. We conclude that even in a highly globalized world with sophisticatedmanagers, culture matters.

Keywords

earnings discretion, formal institutions, harmony, individualism, national culture, corporate, risk-taking, uncertainty avoidance

Discipline

Corporate Finance | Critical and Cultural Studies

Research Areas

Accounting Information System

Publication

Journal of Corporate Finance

Volume

23

ISSN

0929-1199

Identifier

10.1016/j.jcorpfin.2013.07.008

Publisher

Elsevier

Additional URL

https://doi.org/10.1016/j.jcorpfin.2013.07.008

Download

Share

COinS