Will Dialect Differences Affect Corporate Value?

Culture and finance are a hot topic nowadays.Culture affects transaction costs and economic communication by affecting the level of trust between people.Trust is easily generated among people with the same culture,which can reduce transaction costs and promote trade and productivity.China is a society of human relationship.People value classmates and fellow relations even in business management.In a listed company,the board of directors may hire a manager in the same dialect area.This paper uses dialect as the proxy variable of regional culture.It studies the relationship between board chairman and general manager's dialect differences and corporate values and its impact mechanism.It takes China's listed companies as an example to explore.For the total sample,the consistency of dialects will enhance the value of enterprises.It finds that for state-owned enterprises,dialect consistency will enhance enterprise value.However,private enterprises show the opposite result——the dialect consistency reduces the enterprise value.It also explores the transmission path of dialect consistency influencing enterprise value.The empirical results show that on the one hand,the dialect consistency strengthens the trust relationship between the executives and the board of directors,thus reducing the principal-agent cost and improving the enterprise value.On the other hand,dialect consistency will make the board of directors agree on the manager's propose easily,which will improve the financial risk of the company,and the increase of financial risk will reduce the enterprise value.At the same time,it attempts to understand the reasons why state-owned enterprises and private enterprises show different effects.It argues that the improvement of enterprise value in state-owned enterprises and the weakening effect of enterprise value in private enterprises caused by the different management procedures and regulations.State-owned enterprises have strict rules and regulations and approval procedures.Even if the board of directors trusts the general manager,it will still strictly review it according to the standard process and make seriousresolutions.Therefore,there will be no excessive trust leading to the reduction of corporate value.However,the private enterprises lack strict rules and regulations.When the manager gets enough power,he/she may seek private interests and occupy shareholders' rights.