Effects of culture on firm risk-taking: a cross-country and cross-industry analysis
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This paper investigates the effects of national culture on firm risk-taking, using a comprehensive dataset covering 50,000 firms in 400 industries in 51 countries. Risk-taking is found to be higher for domestic firms in countries with low uncertainty aversion, low tolerance for hierarchical relationships, and high individualism. Domestic firms in such countries tend to take substantially more risk in industries which are more informationally opaque (e.g., finance, mining, oil refinery, IT). Risk-taking by foreign firms is best explained by the cultural norms of their country of origin. These results hold even after controlling for legal constraints, insurance safety nets, and economic development.
KeywordsNational culture Corporate risk-taking Industry opacity
JEL ClassificationG32 G34 L20 N20 M14 D8
I have benefited especially from detailed discussions with Stijn Claessens and Luc Laeven. I am grateful to Mohsan Bilal for his extensive help with the data. I would like to thank George Akerlof, Christopher Baum, John Beshears, Nathan Nunn, Lev Ratnovski, Fabian Valencia, and Francis Vitek in particular, and participants in the 17th International Conference on Cultural Economics for their interesting comments on the topic, and useful and valuable suggestions on this paper. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. This paper is the winner of the President Prize for the best graduate student paper presented at the ACEI’s 17th International Conference on Cultural Economics in Kyoto, Japan.
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