Mind the gap: public equity as a financing solution for medium-sized enterprises and the influence of national culture

Abstract

PurposeThis research focuses on the demand from medium-sized firms to access public equity as a source of finance. The acceptance of public equity differs strongly between countries, particularly between the United Kingdom and Germany. Therefore, this research aims to identify the impact of national culture on the decision to go public in these two countries.Design/methodology/approachThe theoretical framework builds on the satisficing theory of rationality, the pecking-order theory as well as Hofstede's cultural dimension theory. Using a questionnaire, over 1,000 medium-sized businesses in the United Kingdom and Germany were surveyed.FindingsThe findings demonstrate that British medium-sized firms are more open to using public equity as a source of finance than their German counterparts. The results indicate that national culture not only affects the decision to go public but also has a negative impact on uncertainty avoidance and long-term orientation.Originality/valueThe originality of the research lies in the focus on medium-sized firms and the effects of cultural differences between the United Kingdom and Germany. No previous research has explored how culture influences the decision to go public using a dataset generated from medium-sized firms in the United Kingdom and Germany.

Institutions, Culture, or Interaction: What Determines the Financial Market Development in Emerging Markets?

“…Emerging markets have become the most attractive segment for multinational corporations and institutional investors due to lucrative opportunities. Paula Koch Koch, Crossan, and Jaworski [71] examine the effect of national culture on financial decision-making and conclude that national culture affects decision-making, specifically the selection of capital structure.…”

“…The authors find that uncertainty avoidance negatively explains financial literacy while individualism does otherwise; whereas, Qianqian Du is of the view that culture brings the information asymmetry that affect the financial markets [70]. Koch et al [71] indicate that British medium-sized companies are more receptive to employing public equity as a source of financing than their German counterparts. The authors reveal that national culture influences not just the decision to go public, but also uncertainty avoidance and long-term orientation.…”