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
Citation
LI, Kai; GRIFFIN, Dale; YUE, Heng; and ZHAO, Longkai.
How does culture influence corporate risk-taking?. (2013). Journal of Corporate Finance. 23,.
Available at: https://ink.library.smu.edu.sg/soa_research/1709
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.jcorpfin.2013.07.008