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The Norm Theory of Capital Structure: International Evidence


  • 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.

Weina Zhang

Department of Finance

National University of Singapore

15 Kent Ridge Drive

Singapore 119245



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.

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