The Interrelationship between Culture, Capital Structure, and Performance: Evidence from European Retailers

Research has shown that capital structure influences firm performance. It is generally accepted that variables other than capital structure also influence corporate performance. While this line of research has been extended to an international setting, research on the influence of national culture on capital structure is rather sparse, an issue addressed in this article. Using data from retailers in 14 European countries, which are grouped into four cultural clusters, it is shown that capital structures for retailers vary by cultural clusters. This result holds in the presence of control variables. Using both financial and operational measures of performance, it is shown that capital structure influences financial performance, although not exclusively. A negative relationship between capital structure and performance suggests that agency issues may lead to use of higher than appropriate levels of debt in the capital structure, thereby producing lower performance.