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National Culture and the Valuation of Cash Holdings

National Culture and the Valuation of Cash Holdings Prior studies document that national culture traits are systematically related to cash holdings and attribute this to managerial cultural predispositions. However, it is possible that these preferences reflect investors’ cultural preferences and that managers are simply catering to investors’ preferences. It is also not clear whether the cash holding effects previously documented are value maximizing. By examining the impact of national culture traits on cash valuation, we are able to provide insight into these questions. Specifically, we examine the effect of three national culture traits – individualism, uncertainty avoidance and long‐term orientation – on firm cash valuation. Our results suggest that the previously observed effects of cultural traits on cash holdings and attributed to managerial cultural biases do not reflect investors’ preferences and are not value maximizing. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Business Finance & Accounting Wiley

National Culture and the Valuation of Cash Holdings

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References (65)

Publisher
Wiley
Copyright
© 2017 John Wiley & Sons Ltd
ISSN
0306-686X
eISSN
1468-5957
DOI
10.1111/jbfa.12233
Publisher site
See Article on Publisher Site

Abstract

Prior studies document that national culture traits are systematically related to cash holdings and attribute this to managerial cultural predispositions. However, it is possible that these preferences reflect investors’ cultural preferences and that managers are simply catering to investors’ preferences. It is also not clear whether the cash holding effects previously documented are value maximizing. By examining the impact of national culture traits on cash valuation, we are able to provide insight into these questions. Specifically, we examine the effect of three national culture traits – individualism, uncertainty avoidance and long‐term orientation – on firm cash valuation. Our results suggest that the previously observed effects of cultural traits on cash holdings and attributed to managerial cultural biases do not reflect investors’ preferences and are not value maximizing.

Journal

Journal of Business Finance & AccountingWiley

Published: Jan 1, 2017

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