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Cultural Preferences and Firm Financing Choices

Published online by Cambridge University Press:  11 February 2019

Mascia Bedendo ,
Emilia Garcia-Appendini  and
Linus Siming Open the ORCID record for Linus Siming [Opens in a new window]
Mascia Bedendo
Affiliation:
Bedendo, [email protected], Audencia Business School
Emilia Garcia-Appendini*
Affiliation:
Garcia-Appendini, [email protected], University of Zurich
Linus Siming
Affiliation:
Siming, [email protected], Free University of Bozen-Bolzano
*
Garcia-Appendini (corresponding author), [email protected]
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Abstract

We document significant differences in the financing structures of small firms with managers of diverse cultural backgrounds. To isolate the effect of culture, we exploit cultural heterogeneity within a geographical area with shared regulations, institutions, and macroeconomic cycles. Our findings suggest significant cultural differences in the preference toward debt funding and in the use of formal and informal sources of financing (bank loans and trade credit). Our results are robust to alternative explanations based on potential differences in credit constraints and in the distribution of cultural origins across industries, trading partners, and headquarters locations.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 55 , Issue 3 , May 2020 , pp. 897 - 930
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2019

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Footnotes

We thank Martin Brown, Brunella Bruno, Paolo Colla, Luigi Guiso, Thorsten Hens, Christoph Kaserer, Paul Malatesta (the editor), Cal Muckley, Maurizio Murgia, Karsten Müller, Steven Ongena, Per Östberg, Stephan Siegel (the referee), Venkat Subramaniam, Alexander Wagner, and Alessia Zanella; seminar participants at the Free University of Bozen-Bolzano, Leeds University Business School, Strathclyde Business School, the University of Neuchâtel, Stockholm University, Audencia Business School, the 2017 Swiss Winter Conference on Financial Intermediation, the 2017 Annual Conference of the Swiss Society for Financial Market Research, the 2017 SSES Annual Congress, the 2017 FMA European Conference, the 2017 Annual Meeting of the German Finance Association, the 2017 International Conference on SMEs Finance & Governance, the 2017 Finest Winter Workshop on Contemporary Issues in Banking and Finance, the 2018 Annual Conference of the French Finance Association, and the 2018 EFMA Conference for helpful comments; and Constantin Charles and Kristian Blickle for research assistance. Part of this research was conducted while Garcia-Appendini and Siming were faculty members at St. Gallen University and Bocconi University, respectively. We gratefully acknowledge financial support from the Audencia Foundation. Garcia-Appendini gratefully acknowledges financial support from the European Research Council under the European Union’s Horizon 2020 Research and Innovation Programme ERC ADG 2016 – GA, under Grant No. 740272:lending.

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