Essays on Culture and Corporate Finance

Abstract

The thesis examines the interaction between culture and corporate finance and is based on three empirical studies. The first study shows how uncertainty avoidance culture and the level of uncertainty faced by a nation jointly determine the level of corporate investment. Focusing on cash holdings, the second study shows that controlling the principal–agent problem through monitoring mechanisms is likely to be more effective in tight cultures and less effective in loose cultures, where deviant behaviour is more common. The third study shows that the predictions of the pecking order theory of capital structure are stronger in tight cultures, where informational problems are expected to be more severe, as individuals in tight cultures may obscure information to avoid societal pressure.