Finance and Financial Management Commons^™

Collectivism And The Costs Of High Leverage, Sadok El Ghoul, Omrane Guedhami, Chuck C.Y. Kwok, Ying Zheng

Finance Department Faculty Journal Articles

Prior literature shows that high leverage is associated with losses in market share due to unfavorable actions by customers and competitors. Building on this literature, we investigate the effect of collectivism on the product market performance of highly leveraged firms. Using a sample of 46 countries over the 1989–2016 period, we find significantly lower costs of high leverage for countries with higher collectivism scores. Moreover, we find that the impact of collectivism on high leverage costs is more pronounced for firms with high product specialization and with financially healthy rivals. In additional analysis, we find that collectivism helps highly leveraged …