The interrelationship between culture, capital structure, and performance:Evidence from European retailers

Research has shown that capital structure influences firm performance. It i s generally accepted that variables other than capital structure also influ ence corporate performance. While this line of research has been extended t o an international setting, research on the influence of national culture o n 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 structuresfor retailers va ry by cultural clusters. This result holds in the presence of control varia bles. Using both financial and operational measures of performance, it is s hown that capital structure influences financial performance, although not exclusively. A negative relationship between capital structure and performa nce suggests that agency issues may lead to use of higher than appropriate levels of debt in the capital structure, thereby producing lower performanc e. (C) 2000 Elsevier Science Inc. All rights reserved.