National Culture and Cash Holdings in International Markets

Abstract

In this paper, we examine whether national culture can explain the variation in corporate cash holdings around the world. We employ Hofstede’s (1980, 2001) cultural dimensions (proxied by individualism and uncertainty avoidance) that are assumed to capture cross-cultural differences and hypothesize that the individualism and uncertainty avoidance indices can explain the variation in cash holdings. Using comprehensive data for 26,950 firms from 40 countries spanning the period 1989-2009, we show that individualism is significantly negatively correlated and uncertainty avoidance is positively correlated with firm cash holdings. Taken together, we show that national culture affects corporate financial decisions.