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The Effects of Cultural Values on Bank Failures around the World

Published online by Cambridge University Press:  03 April 2020

Allen N. Berger ,
Xinming Li ,
Charles S. Morris  and
Raluca A. Roman
Allen N. Berger
Affiliation:
Berger, aberger@moore.sc.edu, University of South Carolina–Columbia, Wharton Financial Institutions Center, European Banking Center
Xinming Li*
Affiliation:
Li, hengqian_li@hotmail.com, Nankai University School of Finance
Charles S. Morris
Affiliation:
Morris, chuck.morris@economicclubkc.org, Federal Reserve Bank of Kansas City and the Economic Club of Kansas City
Raluca A. Roman
Affiliation:
Roman, raluca.roman@phil.frb.org, Federal Reserve Bank of Philadelphia
*
Li (corresponding author), hengqian_li@hotmail.com
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Abstract

We conduct the first broad-based international study on bank-level failures covering 92 countries over 2000–2014, investigating national cultural variables as failure determinants. We find individualism and masculinity are positively associated with bank failure, but they operate through different channels. Managers in individualist countries assume more portfolio risk, while governments in masculine countries allow banks to operate with less liquidity and less often bail out troubled institutions. Findings are robust to accounting for endogeneity, different techniques and measures, and additional controls. Results have implications for prudential policies, including regulation, supervision, and bailout strategies, that may partially mitigate some negative effects of culture.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 3 , May 2021 , pp. 945 - 993
Copyright
© The Author(s). Published by Cambridge University Press on behalf of Michael G. Foster School of Business, University of Washington 2020

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Footnotes

*

The views expressed are those of the authors and do not represent the views of the Federal Reserve Bank of Philadelphia or Kansas City or the Federal Reserve System. The authors thank Chuck Kwok for inspiration in developing the idea and Xiaoding Liu for sharing the data on saving culture. The authors thank Alin Andries, Nikolaos Artavanis, Lamont Black, Gary Bliss, Lucy Chernykh, Yongqiang Chu, Stijn Claessens, Nathan Converse, Ricardo Correa, Ken Cyree, Omrane Guedhami, Anil Jain, Chen Lin (the referee), Paul Malatesta (the editor), Stewart Miller, Sergey Mityakov, Jenny Tang, David Wheelock, Larry White, Yi Zhan, Donghang Zhang, and participants at the presentations at the Federal Reserve Bank System Committee on International Economic Analysis, the Financial Management Association Meetings, the Southern Finance Association Meetings, the Midwest Finance Association Meetings, the Eastern Finance Association Meetings, and the Academy of International Business Meetings for useful comments and suggestions, and Xiaonan (Flora) Ma and Leili Pour Rostami for excellent research assistance.

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