National culture, lines of credit, and firm liquidity

Globally, there is a distinct heterogeneity in the utilization of lines of credit as a source of corporate liquidity. Motivated by a voluminous literature that establishes culture as the deep-rooted source of cross-national heterogeneities, we examine how national culture, as measured by individualism and uncertainty avoidance, affects this observed global heterogeneity in utilization of lines of credit. Individualistic cultures are more likely to make use of lines of credit, while uncertainty-avoiding cultures are less likely. Moreover, cultures with high individualism and low uncertainty avoidance tend to substitute lines of credit more. Individualism's impact on both the utilization and substitutability of lines of credit is orders of magnitude larger than that of uncertainty avoidance. Individualistic cultures that foster risk-taking make great use of lines of credit as a liquidity source despite the strings attached by banks through underlying lending commitments. Uncertainty-avoiding cultures avoid dealing with the monitored liquidity offered through lines of credit, even when firm risk profiles (cash flows) are sound.