Indulgence and risk-taking behavior of firms: Direct and interactive influences

Abstract

This study examines the impact of Hofstede's indulgence vs restraint national culture dimension (IVR) on firms' risk-taking behavior. We argue that firms in more indulgent societies will show greater risk-taking behavior given their tendencies to be less rigid and their greater inclination for discounting risk-taking losses. We further argue that the buffers that slack resources provide against risk-taking losses and the positive expectations of potential gains from risk-taking provided by growth opportunities will further increase firms' risk-taking behavior when interacting with indulgence mechanisms. Our findings from a 37-country study support these arguments. They show that high indulgence does increase firms' risk-taking behavior and slack resources and growth opportunities intensify this causal effect. Tests of three-way interactions further reveal that the positive impact of indulgence on firms' risk-taking behavior is strongest when both slack resources are abundant and the growth opportunities are high. We extend current knowledge about culture's effect on firm behavior.