The effect of cultural heterogeneity on cash holdings of multinational businesses

So, Jacky C.; Zhang, John Fan

doi:10.1016/j.ribaf.2022.101660

Cited by 12 publications

(5 citation statements)

References 85 publications

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“…To capture the degree of cultural dispersion within a multinational firm, we begin with measuring cultural distances between home and foreign countries in a similar way to Huang (2015), Karolyi (2016), So and Zhang (2022), and Zhang (2022) and use the Euclidean version of Kogut and Singh's (1988) formula as follows:

{italicDistance}_{US, j} = \sqrt{\sum_{k = 1}^{K} \frac{{(I_{k, j} - I_{k, US})}^{2}}{V_{k}}}

where

I_{k, j}

is the score of cultural dimension k for foreign country j ,

I_{k, i}

is the score of cultural dimension k of the United States, and

V_{k}

is the in‐sample variance of cultural dimension k and is used to normalize cultural distance measured by each cultural dimension. For the main analysis, cultural distance is estimated by Hofstede et al's (2010) cultural dimensions 7…”

Section: Methodsmentioning

confidence: 99%

Section: Capturing Cultural Dispersionmentioning

confidence: 99%

“…The mechanism is that trust encourages collaboration and fosters tolerance for failure. So and Zhang (2022) report that cultural heterogeneity is positively associated with cash holdings. This paper links diversity and culture studies by examining their effects on stock liquidity.…”

Section: Introductionmentioning

confidence: 99%

“…More similar to this study, Huang (2015) and Nahata et al (2014) use an aggregated Hofstede et al's (2010) dimensions to capture an overall cultural difference between two countries, reporting that cultural differences significantly impact the investors' reaction to foreign operations information and the success in foreign venture capital investment. (also see, e.g., Chui et al, 2010; Ferris et al, 2013; He & Huang, 2017; Karolyi, 2016; and Nahata et al, 2014; So & Zhang, 2022; Zhang, 2022) See Karolyi (2016) for an excellent overview of finance studies using Hofstede et al's (2010) cultural framework. For the robustness tests, alternative cultural measures are also used and reported in Appendix .…”

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confidence: 99%

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Cultural dispersion and stock liquidity

Zhang

2023

Global Strategy Journal

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Research SummaryThis paper examines whether cultural dispersion of a multinational firm affects its stock trading in the market. The result shows that the stock liquidity negatively relates to the degree of cultural dispersion, suggesting it is costlier to trade stocks of culturally diverse firms. Among five measures of stock liquidity, Chae's (2005) turnover measure demonstrates the most consistent effect after addressing potential omitted variables and selection biases. A robustness test that extends our sample to include purely domestic firms confirms the main result of the negative effect of cultural dispersion. Furthermore, while the relation between cultural dispersion and stock liquidity may not be exactly linear, such a negative association overall holds. In addition, the influence of cultural dispersion on stock trading takes effects mainly through the agency and external information environment channels and is more pronounced for lower risk‐taking multinationals.Managerial SummaryThis result has three practical implications for investment management. First, it is important to consider the internal cultural diversity when investing multinational firms. Second, the evaluation of firm liquidity goes beyond financial fundamentals or market mechanism. When a firm increase its degree of informational complexity and unfamiliarity, it tends to decrease its attractiveness to investors. Last but not least, when investing globally, cultural differences is an important consideration. Using stock liquidity as a research platform, this study suggests that the effect of cultural difference is indeed material.

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{italicDistance}_{US, j} = \sqrt{\sum_{k = 1}^{K} \frac{{(I_{k, j} - I_{k, US})}^{2}}{V_{k}}}

where

I_{k, j}

is the score of cultural dimension k for foreign country j ,

I_{k, i}

is the score of cultural dimension k of the United States, and

V_{k}

Section: Methodsmentioning

confidence: 99%

Section: Capturing Cultural Dispersionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 99%

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Cultural dispersion and stock liquidity

Zhang

2023

Global Strategy Journal

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“…Following literature (e.g., Gao et al 2013;Chen et al 2020;So and Zhang, 2022) the natural logarithm of cash and cash equivalents divided by total assets is used as a proxy for cash holdings. Using the natural logarithm of the measurement ratio helps in correcting the skewness of the variables and mitigate the effect of the outlier (Lau and Block, 2012;Chen et al, 2020).…”

Section: -2-2 the Dependent Variable 3-2-2-1 Cash Holdingsmentioning

confidence: 99%

أثر التجنب الضریبی ودورة حیاة الشركة على الاحتفاظ بالنقدیة: دلیل من سوق الأوراق المالیة المصری(باللغة الانجلیزیة)

الداوایاتی¹

2022

مجلة الاسکندریة للبحوث المحاسبیة

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This research aims to investigate the impact of tax avoidance and firm life cycle on cash holdings for a sample of 126 non-financials companies listed on the Egyptian stock market with 711 observations for the period 2012 -2019. Tax avoidance, the first independent variable is measured by two proxies: the current effective tax rate (ETR), and book tax difference ratio (BTD). For the second independent variable, firm's life cycle, the cash flow approach is used to capture the five stages of the life cycle. Turning to the cash holdings as the dependent variable, two indicators are used. The first main indicator is Ln cash ratio calculated by taking the natural logarithm of cash and cash equivalents to total assets. The second indicator is used in the robustness test, which is calculated as the natural logarithm of cash and cash equivalents divided by total assets minus cash and cash equivalents. The results elaborated that there is a significant negative relationship between tax avoidance measured by the two proxies and cash holdings measured by the two indicators. Additionally, the findings displayed that the introduction stage of the firm's life cycle has a significant negative impact on cash holdings and a significant positive effect of shake-out stage on cash holdings while there is no relationship between the growth, mature and decline stages and cash holdings. The statistical tests are repeated for all variables using the second indicator of cash holding and the same results are obtained. Beyond these tests, for more analysis the research sample is divided into five subsamples presented the five stages of firm's life cycle. The results showed that higher negative impact of tax avoidance on cash holdings lies in the shake-out and the decline stages. On the other side, no impact of tax avoidance on cash holdings in the remaining stages.

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