Languages and corporate savings behavior

Shimin Chen, Henrik Cronqvist, Serene Ni, Frank Zhang

Research output: Contribution to journalArticle

8 Scopus citations

Abstract

Speakers of strong future time reference (FTR) languages (e.g., English) are required to grammatically distinguish between future and present events, while speakers of weak-FTR languages (e.g., Chinese) are not. We hypothesize that speaking about the future in the present tense may result in the belief that adverse credit events are more imminent. Consistent with such a linguistic hypothesis, weak-FTR language firms are found to have higher precautionary cash holdings. We report additional supportive results from changes in the relative importance of different languages in a country's business domain, evidence from within one country with several distinct languages, and results related to changes following a severe financial crisis. Our evidence introduces a new explanation for heterogeneity in corporate savings behavior, provides insights about belief formation in firms, and adds to research on the effects of languages on economic outcomes.

Original languageEnglish (US)
Pages (from-to)320-341
Number of pages22
JournalJournal of Corporate Finance
Volume46
DOIs
StatePublished - Oct 1 2017

Keywords

  • Corporate savings behavior
  • Linguistic hypothesis

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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