Culture, institutions, and financing choices: How and why are they related?

This paper explains the need for supplementing traditional financial and economic factors with softer cultural and institutional measures in explaining the determinants of firm financing. The theoretical arguments are based on the incompleteness of contracts and therefore the important role of ethics and behavioral norms in the need and cost of enforcing such contracts. The practical argument is simply that adding these soft factors to traditional economic factors provides a better and more complete explanation of firm financing. This paper notes the lack of such literature in mainstream finance journals in spite of these demonstrated needs. Finally, this paper introduces the papers in this issue and their contributions.