Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/61363
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Title: National culture and the cost of debt
Authors: Chui, ACW 
Kwok, CCY
Zhou, GS
Issue Date: Aug-2016
Source: Journal of banking and finance, Aug. 2016, v. 69, p. 1-19
Abstract: This study investigates how Schwartz's cultural dimensions of embeddedness and mastery affect the corporate cost of debt through bankruptcy risk and sensitivity to agency activity channels. Using data from 33 countries, we find a strong and robust negative relation between embeddedness and the cost of debt. The estimated relation between mastery and the corporate cost of debt is negative and significant in most of the tests. Further analyses reveal that the development of financial intermediation and the enforcement of insider trading law moderate the relation between culture and the cost of debt. Confirming our hypotheses, we document that embeddedness is negatively related to bankruptcy risk and sensitivity to agency activity. We find that mastery is positively related to bankruptcy risk across countries as well, but this relation is weaker. We also show that mastery is positively related to sensitivity to agency activity among countries with highly leveraged firms.
Keywords: Agency cost
Bankruptcy
Cost of capital
Embeddedness
Mastery
National culture
Publisher: Elsevier
Journal: Journal of banking and finance 
ISSN: 0378-4266
EISSN: 1872-6372
DOI: 10.1016/j.jbankfin.2016.04.001
Rights: © 2016 Elsevier B.V. All rights reserved.
© 2016. This manuscript version is made available under the CC-BY-NC-ND 4.0 license https://creativecommons.org/licenses/by-nc-nd/4.0/
The following publication Chui, A. C., Kwok, C. C., & Zhou, G. S. (2016). National culture and the cost of debt. Journal of Banking & Finance, 69, 1-19 is available at https://doi.org/10.1016/j.jbankfin.2016.04.001
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