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The impact of cultural distance on fund transfers in the internal capital market

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  • Zhang, John Fan
  • Wang, Yang
  • Du, Qingjie

Abstract

This paper examines how cultural distance affects fund transfers in the internal capital market of multinational firms. The results show that a larger cultural distance significantly reduces internal fund transfers to foreign subsidiaries. These results are robust to alternative measures of cultural distance and different econometric specifications. External shocks do not affect the results. Further analysis shows that the negative cultural impact is driven mainly by the dimensions of power distance, individualism, and uncertainty avoidance. Furthermore, the effect of cultural distance on internal fund transfers is independent of subsidiary productivity, and a larger cultural distance exacerbates the negative impact of corporate diversification on firm value. Overall, our findings highlight the important role that culture plays in multinationals’ global operations.

Suggested Citation

  • Zhang, John Fan & Wang, Yang & Du, Qingjie, 2024. "The impact of cultural distance on fund transfers in the internal capital market," Journal of Banking & Finance, Elsevier, vol. 165(C).
    • Handle: RePEc:eee:jbfina:v:165:y:2024:i:c:s0378426624001419
    DOI: 10.1016/j.jbankfin.2024.107224
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    More about this item

    Keywords

    Cultural distance; Multinationals; Internal capital market; Fund transfer;
    All these keywords.

    JEL classification:

    • Z10 - Other Special Topics - - Cultural Economics - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F30 - International Economics - - International Finance - - - General

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