Bank vs. Bond Finance : A Cultural View of Corporate Debt Financing

This study enhances the growing research field of Cultural Finance by analyzing the relationship between cultural value types – in particular Autonomy and Embeddedness – and the corporate debt choice of either bank or bond financing. We derive our hypotheses from a slight modification and re-interpretation of the Chemmanur and Fulghieri (1994) approach of “relationship lending”. Referring to the importance of specific human capital investments and individuals' future orientation, we show that firms in Autonomy cultures tend toward bank finance, whereas firms in Embeddedness cultures show a preference for financing by issuing bonds. In a cross-country analysis with 71 countries, we find empirical evidence for our established hypotheses