Cultural barriers in China's corporate loans

Abstract

This study uses listed companies and dialect data to examine how dialect diversity affects corporate unsecured loans. Through our analysis, we find that dialect diversity significantly reduces corporate unsecured loans. Mechanism analyses show that language barriers and social trust are external environmental mechanisms, while corporate transparency and overdue are internal mechanisms. Heterogeneity analyses indicate that corporate risk and asset intensity can increase the negative effect of dialect diversity. In addition, the effect of dialect diversity is only significant in groups with low financial development, low marketization, and high market segmentation. Furthermore, the negative effects of dialect diversity on corporate unsecured loans ultimately increase the burden on enterprises and their financial expense ratios. We provide a new perspective on the determinants of corporate collateral. Suggestions to reduce corporate unsecured loan constraints are provided at the end of this paper.