Influence of national culture on IPO activity

Abstract

We study the impact of national culture on initial public offerings (IPOs) - an important entrepreneurial activity through examining and providing empirical evidence of the proclivity for entrepreneurial firms situated across cultural contexts to seek legitimacy through floating IPOs. Informal institutions like culturally embedded societal norms of entrepreneurial behaviors and expectations for retained earnings as well as societal preferences for discretionary free cash flows are presented as the legitimizing mechanisms for such actions. We examined 7654 IPOs that occurred between 2003 and 2012 (312 country-year observations) from 47 countries. The results showed that countries with high power distance, high collectivism, and long-term orientation were positively associated with higher levels of IPO activity. In addition, the IPO activity levels were found to be significantly lower when the aggregated Euclidean distance differences between individual country culture profiles (where all the six dimensions of Hofstede's national culture taxonomy were considered together) and the ideal country cultural profile were greater.