Review of Corporate Finance > Vol 2 > Issue 2

Cultural Diversity and Capital Structures of Multinational Firms

John F. Zhang, School of Business, Macau University of Science and Technology, China,
Suggested Citation
John F. Zhang (2022), "Cultural Diversity and Capital Structures of Multinational Firms", Review of Corporate Finance: Vol. 2: No. 2, pp 295-351.

Publication Date: 30 May 2022
© 2022 J. F. Zhang
Corporate finance,  Financial markets,  Corporate governance,  International business,  Organizational behavior,  Strategic management,  Information systems and society,  International strategy,  International operations
JEL Codes: Z10, G32, F23, F65
Cultural diversitycapital structuremultinational firmsglobalization


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In this article:
Theory and Hypotheses 
Data and Variables 
Variable Description 


This paper examines whether and how cultural diversity within multinational firms affects their capital structures. The result shows that the higher the cultural diversity, the lower the leverage ratio. The negative relation between cultural diversity and the leverage ratio holds after controlling for firm-level determinants and well-documented country-level factors. Further analyses suggest that cultural diversity affects the capital structures of multinational firms mainly through equity issuance rather than debt reduction. In addition, cultural distance negatively affects the subsidiary debt ratio. These findings indicate that national culture plays a significant role in determining the corporate capital structure in a multinational setting.