National culture and bank risk-taking

Abstract

We investigate the relation between national cultural values and bank risk. Despite the rigid transnational regulatory oversight of systemic European banks, we find evidence of an economically significant association between cultural values and domestic bank risk. Specifically, we report a positive (negative) association between the cultural values of individualism and hierarchy (trust) and domestic bank risk-taking. Consistent with our predictions, this relation weakened during the recent financial crisis and does not hold for global banks, regardless of the period under investigation. Our findings are robust to endogeneity tests that mitigate concerns regarding reverse causality and confounding effects affecting our conclusions.

National culture and risk-taking: Evidence from the insurance industry

“…Nonetheless, this list is far from exhaustive, especially when it comes to the latter strand. Moreover, given the association of informal institutions, such as national culture, with the risk-taking trajectory of other financial institutions, such as banks (Kanagaretnam et al, 2011;Ashraf et al, 2016;Ashraf and Arshad, 2017;Mourouzidou et al, 2017), and the direct association to insurance products in general (Hofstede, 1995) and their consumption at a macro level in particular (Chui and Kwok, 2008), we conjecture that informal institutions are crucial when it comes to the risk of insurance firms and we forthwith explain why.…”

“…From an empirical point of view, the interplay between these two drivers is well-documented, with national culture having been linked to the propensity of firms to invest in longer-term riskier projects (Shao et al, 2013), to the degree of individuals' financial risk-taking and purchase of stocks (Breuer et al, 2014) and the overall increased risk-taking trajectory of firms (Kreiser et al, 2010;Mihet, 2013;Li et al, 2013) and banks (Kanagaretnam et al, 2011;Ashraf et al, 2016;Ashraf and Arshad, 2017;Mourouzidou et al, 2017). Notwithstanding the volume of documented evidence, to this date there is no study examining this interplay from the viewpoint of insurance firms.…”

The impact of political instability on risk‐taking in the banking sector: International evidence using a dynamic panel data model (System‐GMM)

“…Besides the primary measure of banking sector's risk-taking (−1 × Z-score), the paper will also examine the banking stability (Zscore) and earnings volatility (σROA) as alternative measures of the banking risk-taking (see, Craig & Dinger, 2013;García-Kuhnert, Marchica, & Mura, 2015;Jin et al, 2013;Laeven & Levine, 2009;Mourouzidou-Damtsa et al, 2017).…”

“…For the banking sector, a control for banking market share (MSH) and bank inefficiency (BINE) is taken. The market share of the banking sector following Antzoulatos and Tsoumas (2014) is used to capture the "too big to fail" considerations, whereas the bank inefficiency is used to capture the "bad management" hypothesis following Fiordelisi et al (2011. On the other hand, a control for economic development (ED) and economic risk (ER) are chosen at country-level following previous literature (Anginer, Demirguc-Kunt, & Zhu, 2014;Laeven & Levine, 2009;Mourouzidou-Damtsa et al, 2017). The economic development is used to capture the crosscountry differences regarding the level of economic development and income, whereas the economic risk, measured by the volatility of real gross domestic product growth, is used to hold aggregate economic volatility.…”

“…Moreover, Mourouzidou-Damtsa, Milidonis, and Stathopoulos (2017) investigated the relationship between national cultural values and bank risk. They found evidence of a significant association between cultural values and risk-taking by domestic European banks.…”