We investigate the role of managers’ country of origin in leverage decisions using data on foreign joint ventures in China. By focusing on foreign joint ventures in a single country, we are able to hold constant the financing environment, eliminate the effects of formal institutions in the foreign managers’ home country, and consequently reveal the effects of informal institutions such as national culture on corporate finance decisions. Using cultural values of embeddedness, mastery, and uncertainty avoidance to explain country of origin effects, we find that national culture has significant explanatory power in the financial leverage decisions of foreign joint ventures in China. Country-level variation is evident in capital structure and appears to work through choices of firm characteristics, industry affiliation, ownership structure, and region of investment.

We investigate the role of managers' country of origin in leverage decisions using data on foreign joint ventures in China. By focusing on foreign joint ventures in a single country, we are able to hold constant the financing environment, eliminate the effects of formal institutions in the foreign managers' home country, and consequently reveal the effects of informal institutions such as national culture on corporate finance decisions. Using cultural values of embeddedness, mastery, and uncertainty avoidance to explain country of origin effects, we find that national culture has significant explanatory power in the financial leverage decisions of foreign joint ventures in China. Country-level variation is evident in capital structure and appears to work through choices of firm characteristics, industry affiliation, ownership structure, and region of investment.

In a series of cross-country comparisons, we show that national culture is statistically significant in differentiating countries with different corporate governance systems. Using the Schwartz cultural value model and data on corporate governance systems, we analyze the impact of national culture on six dimensions of corporate governance. Countries that have stronger emphasis on the dimensions of Embeddedness, Hierarchy and Mastery are more likely to have a bank-based system, countries with a stronger emphasis on Autonomy, Egalitarianism and Harmony tend to have market-based systems. The findings suggest several implications for the ongoing debate on convergence and divergence of corporate governance systems.