National Culture and Cross-Country Differences in Trade Credit

Abstract

The aim of this paper is to investigate whether national culture explains previously observed cross-country variation in trade credit. Previous work suggests that national culture may close the gap between behavioral finance and “Law and Finance” in corporate finance. National culture influences on human values and is therefore expected to drive individual behavior. If we presume that people in charge of the company, represent the values of the nation in the country the company operates, we can predict the relationship between the financial decision making of the company and the national culture. Using firm level data from 35 European countries, religion and cultural factors from Hofstede and Schwartz, we provide new evidence on the determinants of the cross country variance in trade credit.Our results indicate that religion and national culture are associated with trade credit. We find that the levels of the trade credit are higher in the Catholic countries than in the Protestant ones. We also find that Hofstede’s cultural dimensions power distance and uncertainty avoidance are positively related to trade credit while individualism is negatively related to accounts receivable. Schwartz cultural orientation intellectual autonomy is negatively related to trade credit and conservatism is positively associated with accounts payable. Overall, our findings indicate that religion and the national culture are important determinants of trade credit management.