Bank vs. Bond Finance

Abstract

This chapter enhances the growing research field of Cultural Finance by analyzing the relationship between cultural value types—in particular, Autonomy and Embeddedness—and the corporate debt choice of either bank or bond financing. The authors derive their hypotheses from a slight modification and re-interpretation of the Chemmanur and Fulghieri (1994) approach of “relationship lending.” Referring to the importance of specific human capital investments and individuals' future orientation, they show that firms in autonomy cultures tend toward bank finance, whereas firms in embeddedness cultures show a preference for financing by issuing bonds. In a cross-country analysis with 71 countries, the authors find empirical evidence for their established hypotheses.

National culture and leverage adjustments

“…Among emerging economies, firms in long term—oriented countries have lower debt levels (Wang and Esqueda, 2014). Firms in long term–oriented countries are also more likely to prefer bank financing to market financing (Breuer et al , 2014).…”