IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v66y2024ics1544612324006950.html
   My bibliography  Save this article

From words to finances: Unraveling the negative net debt-languages nexus

Author

Listed:
  • Kadzima, Marvelous
  • Machokoto, Michael
  • Lemma, Tesfaye T.

Abstract

Using an international dataset, we find that firms in countries with languages that lack a clear distinction between present and future tenses, leading to weaker future time references, are more likely to adopt negative net debt. This conservative and non-standard financing policy is notably pronounced among financially constrained firms, those with weaker governance, and those operating in highly competitive industries. Interestingly, this increase in negative net debt with weak-FTR is higher in countries with more established institutions, financial systems, and legal frameworks, which typically exhibit a lower prevalence of financial conservatism and a weaker influence of informal institutions on corporate decisions.

Suggested Citation

  • Kadzima, Marvelous & Machokoto, Michael & Lemma, Tesfaye T., 2024. "From words to finances: Unraveling the negative net debt-languages nexus," Finance Research Letters, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:finlet:v:66:y:2024:i:c:s1544612324006950
    DOI: 10.1016/j.frl.2024.105665
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612324006950
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2024.105665?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chen, Shimin & Cronqvist, Henrik & Ni, Serene & Zhang, Frank, 2017. "Languages and corporate savings behavior," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 320-341.
    2. Chang'an Wang & Junqian Wu & Jianqing Ruan & Xiaoqian Liu, 2022. "Language differences, cultural identity, and innovation," Growth and Change, Wiley Blackwell, vol. 53(4), pages 1716-1736, December.
    3. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    4. Djankov, Simeon & Glaeser, Edward & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2003. "The new comparative economics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 595-619, December.
    5. Chi, Jianxin Daniel & Su, Xunhua & Tang, Yun & Xu, Bin, 2020. "Is language an economic institution? Evidence from R&D investment," Journal of Corporate Finance, Elsevier, vol. 62(C).
    6. Jiang, Feng & John, Kose & Li, C. Wei & Qian, Yiming, 2018. "Earthly Reward to the Religious: Religiosity and the Costs of Public and Private Debt," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 53(5), pages 2131-2160, October.
    7. Chipeta, Chimwemwe & Aftab, Nadeem & Machokoto, Michael, 2021. "The implications of financial conservatism for African firms," Finance Research Letters, Elsevier, vol. 42(C).
    8. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    9. Machokoto, Michael & Chipeta, Chimwemwe & Ibeji, Ngozi, 2021. "The institutional determinants of peer effects on corporate cash holdings," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 73(C).
    10. Bart M. Lambrecht & Grzegorz Pawlina, 2013. "A Theory of Net Debt and Transferable Human Capital," Review of Finance, European Finance Association, vol. 17(1), pages 321-368.
    11. He, Wen & Zhang, Feida, 2022. "Languages and dividends," The British Accounting Review, Elsevier, vol. 54(6).
    12. Yuka Nishikawa & Mohammad Hashemi Joo & Ali M. Parhizgari, 2023. "Languages and Dividend Policy," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 24(1), pages 22-40, January.
    13. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    14. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    15. Machokoto, Michael & Areneke, Geofry & Ibrahim, Boulis Maher, 2020. "Rising corporate debt and value relevance of supply-side factors in South Africa," Journal of Business Research, Elsevier, vol. 109(C), pages 26-37.
    16. Hao Liang & Christopher Marquis & Luc Renneboog & Sunny Li Sun, 2018. "Future-Time Framing: The Effect of Language on Corporate Future Orientation," Organization Science, INFORMS, vol. 29(6), pages 1093-1111, December.
    17. Francis Osei-Tutu & Laurent Weill, 2021. "How language shapes bank risk taking," Journal of Financial Services Research, Springer;Western Finance Association, vol. 59(1), pages 47-68, April.
    18. Cuong, Ly Kim & Shimizu, Katsutoshi & Cui, Weihan, 2021. "The determinants of negative net leverage policy: New evidence from Japan," Economic Modelling, Elsevier, vol. 97(C), pages 449-460.
    19. Ke Na & Wenjia Yan, 2022. "Languages and corporate tax avoidance," Review of Accounting Studies, Springer, vol. 27(1), pages 148-184, March.
    20. Kim, Jaehyeon & Kim, Yongtae & Zhou, Jian, 2017. "Languages and earnings management," Journal of Accounting and Economics, Elsevier, vol. 63(2), pages 288-306.
    21. Weihan Cui, 2020. "Is debt conservatism the solution to financial constraints? An empirical analysis of Japanese firms," Applied Economics, Taylor & Francis Journals, vol. 52(23), pages 2526-2543, May.
    22. Dongmin Kong & Jialong Wang & Yanan Wang & Jian Zhang, 2022. "Language and innovation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(1-2), pages 297-326, January.
    23. M. Keith Chen, 2013. "The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets," American Economic Review, American Economic Association, vol. 103(2), pages 690-731, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wei Huang & Jaehyeon Kim, 2020. "Linguistically Induced Time Perception and Asymmetric Cost Behavior," Management International Review, Springer, vol. 60(5), pages 755-785, October.
    2. He, Wen & Zhang, Feida, 2022. "Languages and dividends," The British Accounting Review, Elsevier, vol. 54(6).
    3. Gang, Cuiui & Li, Juanwei & Hu, Haiqing & Wei, Wei, 2023. "Dynamic co-movement between economic growth and language: A new perspective of technological progress," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 705-721.
    4. Zhang, Zhi & Zhang, Di & Jiang, Senyang & Li, Ao & Yu, Wei, 2023. "The effect of language on IPO underpricing: Evidence from a multinational research," International Review of Financial Analysis, Elsevier, vol. 89(C).
    5. Kadzima, Marvelous & Machokoto, Michael, 2023. "A semi-parametric analysis of the cash flow sensitivity of cash," Finance Research Letters, Elsevier, vol. 56(C).
    6. Yin, Weijun & Chen, Cuixia & Liu, Bing, 2024. "Linguistic-induced life insurance consumption," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 1083-1101.
    7. Silvia Angerer & Daniela Glätzle-Rützler & Philipp Lergetporer & Matthias Sutter, 2021. "The effects of language on patience: an experimental replication study of the linguistic-savings hypothesis in Austria," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 7(1), pages 88-97, September.
    8. Tang, Jintong & Yang, Jun & Ye, Wenping & Khan, Shaji A., 2021. "Now is the time: The effects of linguistic time reference and national time orientation on innovative new ventures," Journal of Business Venturing, Elsevier, vol. 36(5).
    9. Dongmin Kong & Jialong Wang & Yanan Wang & Jian Zhang, 2022. "Language and innovation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(1-2), pages 297-326, January.
    10. Keller, Tamás & Kiss, Hubert János & Szakál, Péter, 2024. "Endogenous language use and patience," Journal of Economic Behavior & Organization, Elsevier, vol. 220(C), pages 792-812.
    11. Rottner, Florian, 2021. "Language and xenophobia," University of Göttingen Working Papers in Economics 412, University of Goettingen, Department of Economics.
    12. Steen Thomsen & Frederik Vinten, 2014. "Delistings and the costs of governance: a study of European stock exchanges 1996–2004," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(3), pages 793-833, August.
    13. Chi, Jianxin Daniel & Su, Xunhua & Tang, Yun & Xu, Bin, 2020. "Is language an economic institution? Evidence from R&D investment," Journal of Corporate Finance, Elsevier, vol. 62(C).
    14. Summerville, Karoline M. & Chen, Victor Zitian & Shoham, Amir & Taras, Vasyl, 2024. "Speaking of diversity: Can linguistic structural differences explain cultural values toward equity, diversity, and inclusion across the globe?," Journal of World Business, Elsevier, vol. 59(1).
    15. C. S. Agnes Cheng & Jaehyeon Kim & Mooweon Rhee & Jian Zhou, 2022. "Time Orientation in Languages and Tax Avoidance," Journal of Business Ethics, Springer, vol. 180(2), pages 625-650, October.
    16. Niklas Ziemann, 2022. "You will receive your money next week! Experimental evidence on the role of Future-Time Reference for intertemporal decision-making," CEPA Discussion Papers 56, Center for Economic Policy Analysis.
    17. Olayinka Oyekola & Olapeju C. Ogunmokun & Martha A. Omolo & Samuel Odewunmi, 2023. "Gender, Legal Origin, and Accounting Disclosure: Evidence from More Than 140,000 Firms," Discussion Papers 2313, University of Exeter, Department of Economics.
    18. Di Pietro, Francesca & Souitaris, Vangelis & Masciarelli, Francesca & Prencipe, Andrea, 2023. "Closeness of the future: Influence of language future-time reference on individual behaviour," Journal of Business Venturing Insights, Elsevier, vol. 19(C).
    19. Gordon, Elizabeth A. & Gotti, Giorgio & Ho, Joanna H. & Mora, Araceli & Morris, Richard D., 2019. "Commentary: Where is International Accounting Research Going? Issues Needing Further Investigation," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 37(C).
    20. Rottner, Florian, 2021. "Language and decision making: Board members and the investment in the future," University of Göttingen Working Papers in Economics 421, University of Goettingen, Department of Economics.

    More about this item

    Keywords

    Negative net debt; Languages; Institutions; Emerging markets;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:66:y:2024:i:c:s1544612324006950. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.