The determination of capital structure: Is national culture a missing piece to the puzzle?

Why does knowing the nationality of the company help predict its financial leverage? Differences in institutional backgrounds provide only a partial answer to this question. This study suggests that national culture affects corporate capital structures. Empirical hypotheses, drawn from financial models and cross-cultural psychology, are tested against a sample of 5591 firms across 22 countries. Results show that countries with high scores on the cultural dimensions of "conservatism" and "mastery" tend to have lower corporate debt ratios. The effects are strong and remain significant even after accounting for differences in economic performance, legal systems, financial institutions, and some other well-known determinants of debt ratios.