Effects of Culture on Firm Risk-Taking: A Cross-Country and Cross-Industry Analysis
IMF Working Papers, August 1, 2012
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- Effects of Culture on Firm Risk-Taking: A Cross-Country and Cross-Industry Analysis
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Bibliographic details
- Authors: Roxana Mihet
- Published: August 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475505603.001
Key findings
- The study uses a comprehensive dataset covering 50,000 firms in 400 industries in 51 countries.
- Risk-taking is higher for domestic firms in countries with:
- low uncertainty aversion
- low tolerance for hierarchical relationships
- high individualism
- Domestic firms in countries exhibiting the cultural traits above take substantially more risk in industries that are more informationally opaque (e.g., finance, mining, IT).
- Risk-taking by foreign firms is best explained by the cultural norms of their country of origin rather than the host country culture.
- The cultural norms identified do not proxy for legal constraints, insurance safety nets, or economic development.
Implications and interpretation
- Cultural dimensions (uncertainty aversion, tolerance for hierarchy, individualism) have measurable effects on corporate risk-taking behavior across countries and industries.
- Industry opacity amplifies the link between national culture and domestic firm risk-taking in specific sectors (finance, mining, IT).
- Foreign-owned firms retain vestiges of their origin-country cultural norms in their risk-taking, suggesting cross-border managerial and organizational persistence in cultural influence.
Subject areas and keywords (as listed)
- Subject: Asset prices, Central bank policy rate, Competition, Economic sectors, Financial markets, Financial sector development, Financial services, Foreign corporations, Prices
- Keywords: Asset prices, Central bank policy rate, compensation practice, Competition, corporate risk-taking, differential firm, economic development, Financial sector development, firm insolvent, Foreign corporations, Global, industry opacity, National culture, oil refinery, return on assets, risk-taking behavior, sales growth, standard deviation, WP