The Theory And Empirical Research On The Impact Of Regional Culture And Risk Preference On Corporate Investment Decision

This paper is based on the theories of cross cultural psychology, decision making and corporate finance, and follows the research findings of culture and finance to explore the cultural factors that affect corporate investment decisions.We first demonstrate the logic and path that how culture impacts investment decision in theory. With the development of cross culture psychology, foreign scholars compared people’s behavior in different cultures, and found systematic different cultures and risk preferences which indeed lead to different behavior. Corporate investment decision depends on managerial risk preference which is influenced by culture deeply, therefore, the influence chain exists as Culture-Risk Preference-Corporate Investment Decisions. Risk preference plays the intermediate role between culture and investment decision.We choose nomadic culture and farming culture in China to test different risk preferences caused by culture and use the questionnaires of Hofstede’s values and risk choices to do the survey in42universities in China. The results show that, students from nomadic culture area less risk averse than those from farming culture area, indicating that nomadic culture pushes individuals to take risk and people are relatively conservative in farming culture.We collect the data of private listed companies, and regard registration places, the origin of chairman and manager in nomadic and farming areas as the cultures which influence corporate decision-making, and exam the relationship between nomadic culture and investment decisions from corporate cash holding, M&A and capital spending. We know, first, cash holding is lower in nomadic culture area and would not exceed the development needs. It means that nomadic culture brings about corporate to less invest in cash which is less risky. Second, the expansion nature of nomadic culture pushes corporate to take over frequently and chooses the projects that increase risk. Therefore, nomadic culture is the main reason for the high-frequency, high-risk acquisitions. Third, by comparing the fixed assets and intangible assets, we find firms in nomadic culture prefer risky assets and invest more intangible assets, meanwhile, capital spending is overall high and over-investment is serious. In sum, culture impacts firm to select assets, projects and efficiency of investment and nomadic culture prefers to take risk in investment decisions.However, managerial risk preference is also influenced by corporate governance and personal characteristics, so we include these factors and test empirically. We use the shareholding of executives to examine the incentive mechanism, and ownership concentration, outside blockholders, independent directors and other related variables to examine governance level, introducing age, education and tenure as personal characteristics, but there is no consistent empirical result. The impact of external corporate governance mechanisms and managerial personal characteristics on investment decision-making are far weaker than culture. Thus, we prove the differences of social culture are the root causes of corporate investment decisions and nomadic culture leads corporate to make risky investment decisions.This paper tries to do research on corporate decision-making from the perspective of Chinese culture. The results tell us, it is better to trace to cultural sources, which will help us to deeply understand the decisions of entrepreneurs and the growth path of firms, and effectively improve the governance and regulate corporate behavior in China.