Is it important now or in the future? The difference in structure between linguistic tenses and corporate capital
Description
Abstract: Languages vary considerably in marking future events. We investigated whether differences in future tense reference (FTR) across languages could explain cross-country variances in corporate capital structure. Using 798,123 firm-year observations across 71 countries from 1984 to 2019, we find that languages requiring future time marking (strong-FTR) tend to be associated with lower leverage ratio. Moreover, this language-leverage correlation strengthens under well-designed formal and informal institutions. Besides, strong-FTR languages are linked with faster leverage adjustments and reduced adjustment expenses. This study pioneers an exploration of the link between FTR in language and corporate capital structure through the lens of temporal belief precision, offering a new perspective on cross-country capital structure differences.