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National Culture and Profit Reinvestment: Evidence from Small and Medium‐Sized Enterprises
Author(s) -
El Ghoul Sadok,
Guedhami Omrane,
Kwok Chuck,
Shao Liang
Publication year - 2015
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12107
Subject(s) - embeddedness , hierarchy , business , institution , emerging markets , profit (economics) , access to finance , market economy , finance , economics , microeconomics , political science , sociology , anthropology , law
We examine the role of national culture—an important informal institution—in the profit reinvestment decisions of small firms in emerging markets. Prior economic development literature focuses on formal institutions as determinants of growth. However, in emerging markets where formal institutions are less developed, informal institutions should have more of a direct versus indirect impact through formal institutions. We find that Schwartz's cultural dimensions of Embeddedness and Hierarchy negatively affect profit reinvestment, and that access to external financing (strength of property rights) is more important for reinvestment decisions in countries with low (high) Embeddedness and Hierarchy.