The Impact of Geographic and Cultural Dispersion on Information Opacity

Keywords

Cost of capital; Cultural distance; Geography; Transparency

Abstract

This paper investigates the influences of intrafirm geographic and cultural dispersion, the distance between the location of a firm’s investments and its headquarters, on the firm’s information environment. Specifically, using a sample of publicly traded real estate companies across the Asia-Pacific region, we examine how intrafirm geographic and cultural distance impacts a firm’s capital acquisition costs. As a consequence of both the heavily regulated operating environment faced by these firms, as well as the capital intensive nature of this industry, funding costs should be of pronounced importance to firms within this sector. Consistent with this paradigm, we find that firms with geographically disperse investments exhibit enhanced informational opacity. Specifically, firms with more geographically disperse investments exhibit higher capital acquisition costs than their more geographically concentrated counterparts. Similarly, firms with more culturally disparate investments also exhibit enhanced informational opacity, as evidenced by increased capital costs. Additionally, we present evidence that the impact of both physical and cultural distance is increasing following the global financial crisis. Taken together, our results provide strong evidence that both intrafirm geographic and cultural dispersion materially impact both an organization’s information environment and funding costs.

Publication Date

8-15-2019

Publication Title

Journal of Real Estate Finance and Economics

Volume

59

Issue

2

Number of Pages

166-208

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1007/s11146-017-9607-2

Socpus ID

85020169615 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/85020169615

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