Essays on the influence of culture on equity markets

Abstract

Public equity markets enhance access to capital for firms This thesis examines the role of culture in the development of public equity markets in a cross country setting Aggarwal et al 2014a and Nadler et al 2019 point out that there is limited research exploring the role of national culture on finance and that more work is required to understand how financial markets and decisions are affected by national culture and formal institutions This dissertation is formed of five chapters Chapter one introduces and integrates the dissertation work We structure our main chapters around the following issues In Chapter 2 Essay 1 we use a cross country panel data of 55 countries for the period 1995 to 2018 to explore the role of Hofstede 8217 s cultural dimensions Hofstede 1980 on the development of public equity markets The focus in Essay 1 is on the main stock exchange or the main board of a country and we examine the impact of national culture on the market capitalization and total capital raised on the equity markets The main stock exchange is the dominant stock exchange of the country where the large and medium scale enterprises are listed We find that national culture helps explain the differences in the development of the equity markets across countries after controlling for macroeconomic and formal institutional variables Specifically countries with high uncertainty avoidance and high individualism negatively influence the development of equity markets Further high cultural distance from the ideal country profile negatively affects the development of public equity markets Literature indicates that the impact of financial development and formal institutions on firms depends on the size of the firm e g Beck et al 2005 Crouzet et al 2020 In Chapter 3 Essay 2 we explore if national culture has a differential impact on the development of public equity markets for small firms as compared to equity market for large firms newline newline