The Norm Theory of Capital Structure: International Evidence

Akerlof proposes that the norms of decision makers can bridge the gap between New Classical economic theories and conflicting empirical evidence. We apply his framework to cross‐country capital structure decision making and propose a norm theory of capital structure. Consistent with its predictions,...

Full description

Saved in:
Bibliographic Details
Published in:International review of finance 2013-03, Vol.13 (1), p.111-135
Main Authors: Lam, Swee-Sum, Zhang, Weina, Lee, Reginald Reagan Chua
Format: Article
Language:English
Subjects:
Capital structure
Decision making
Economic theory
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Akerlof proposes that the norms of decision makers can bridge the gap between New Classical economic theories and conflicting empirical evidence. We apply his framework to cross‐country capital structure decision making and propose a norm theory of capital structure. Consistent with its predictions, we find that two principal components that represent the manager–subordinate relationship and the manager–environment relationship in a national culture are significantly and negatively related to the median leverage ratio at the country level. This study is among the first to provide a direct link between national culture and capital structure as made operational through managerial norms.
ISSN:1369-412X
1468-2443
DOI:10.1111/j.1468-2443.2012.01154.x