Lam acknowledges funding support from the Ministry of Education of Singapore (AcRF Tier 1 research grant R-315-000-084–112). The authors would like to thank Sudipto Dasgupta (the editor), an anonymous associate editor, an anonymous referee, Warren Bailey, David Hirshleifer, Vidhan Goyal, three anonymous reviewers, and the discussant and participants in the 2009 Academy of Management Meetings for their helpful comments and suggestions. Any remaining errors are ours.
The Norm Theory of Capital Structure: International Evidence*
Version of Record online: 15 MAY 2012
© 2012 The Authors. International Review of Finance © International Review of Finance Ltd. 2012
International Review of Finance
Volume 13, Issue 1, pages 111–135, March 2013
How to Cite
Lam, S.-S., Zhang, W. and Lee, R. R. C. (2013), The Norm Theory of Capital Structure: International Evidence. International Review of Finance, 13: 111–135. doi: 10.1111/j.1468-2443.2012.01154.x
- Issue online: 5 MAR 2013
- Version of Record online: 15 MAY 2012
- Ministry of Education of Singapore. Grant Number: R-315-000-084–112
Akerlof proposes that the norms of decision makers can bridge the gap between New Classical economic theories and conflicting empirical evidence. We apply his framework to cross-country capital structure decision making and propose a norm theory of capital structure. Consistent with its predictions, we find that two principal components that represent the manager–subordinate relationship and the manager–environment relationship in a national culture are significantly and negatively related to the median leverage ratio at the country level. This study is among the first to provide a direct link between national culture and capital structure as made operational through managerial norms.