Work

Individualistic culture and firm default risk: Cross‐country evidence

Year: 2023

Type: article

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.

Source: International Review of Finance

DOI: 10.1111/irfi.12442

Authors: Sivathaasan Nadarajah, Benjamin Liu, Muhammad Atif, Grant Richardson

Institutions: Griffith University, Macquarie University

Language: English

Topic: Financial Distress and Bankruptcy Prediction

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: hybrid

Estimated APC paid: $2,630