This paper studies how could the national culture distance between a foreign subsidiary and its parent affect the fund transfers in the firms’ internal capital market. Following Rajan, Servaes, and Zingales (2000JF), we use the industry and firm adjusted investment to capture the internal fund transfer between a foreign subsidiary and its parent. We find a significant and negative relation between national cultural distance and the internal capital market funding activities. Subsidiaries in countries with larger cultural distances from the home country invest less and are less likely to receive fund from the parent firm. The results from Heckman’s selection model and Tobit regression model further support our argument. Additional analysis shows that the subsidiaries’ investment opportunity could moderate the impact of cultural distance. 

Keywords: Cultural distance, multinationals, internal capital market, fund transfer, investment
JEL Classification: Z10, F23, D24, F21, F30