Abstract
This study examines the association between individualistic culture and firm default risk across countries. Using a sample of 15,225 firms across 32 countries over the 2005–2018 period (115,464 firm-year observations), we find that firms based in countries with high levels of individualism are associated with greater default risk. Our results are robust to a battery of endogeneity and other robustness checks. In additional analyses, we show that risk-taking behavior is a channel through which individualism impacts firm default risk. We also find that the effect of individualistic culture on firm default risk is weak in countries with stringent bankruptcy laws. Overall, the findings of this study can improve our understanding of the impact of major informal institutions, such as individualistic culture, on manager behavior, which has significant implications for firms operating in global financial markets.
| Original language | English |
|---|---|
| Pages (from-to) | 166-194 |
| Number of pages | 29 |
| Journal | International Review of Finance |
| Volume | 24 |
| Issue number | 2 |
| Early online date | 20 Dec 2023 |
| DOIs | |
| Publication status | Published - Jun 2024 |
Bibliographical note
Copyright © 2023 The Authors. International Review of Finance published by John Wiley & Sons Australia, Ltd on behalf of International Review of Finance Ltd. Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.Keywords
- bankruptcy laws
- default risk
- individualism
- national culture
- risk-taking
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