Abstract
We investigate the role of national culture in corporate risk-taking using firm-level data from 35 countries. We identify three dimensions of national culture predicted to influence corporate risk-taking: harmony, individualism, and uncertainty avoidance, and we isolate the effects of firm-level and country-level variables by using a hierarchical linear modeling approach. We show that harmony and uncertainty avoidance are negatively associated with firm-level riskiness, while individualism is positively associated with firm-level riskiness. Further, the presence of earnings smoothing exacerbates the effect of individualism on risk-taking, while larger firm size weakens the effects of individualism and uncertainty avoidance on risk-taking. Our results are robust to alternative specifications and samples.
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