National culture and firms' cash holdings: The role of indulgence and its boundaries

We examine the influence of indulgence vs restraint (IVR), an understudied national culture dimension of Hofstede's framework, on firms' cash holdings to shed light on how culture influences this firm behavior and the boundaries of this effect. We argue that, when compared to their restrained-society counterparts, indulgent -society firms will hold higher cash levels due to their greater propensity for risky investments (precautionary motive) and their managers' weaker moral constraints (agency motive). We also argue that firms' leverage and risky investment levels will intensify, and firm size and countries' shareholder protection levels will attenuate the positive effect of indulgence on firms' cash holdings. The results of our HLM analyses on 16,997 firms across 39 countries verify our arguments and contribute to a more enhanced understanding of national culture's role in firms' cash holdings.