Individualism, formal institutional environments, and bank capital decisions

Mohammad Bitar and Amine Tarazi

Journal of Corporate Finance, 2022, vol. 76, issue C

Abstract: We examine how individualism affects bank capital decisions worldwide and in the United States at the state level. Based on a sample of 7034 banks in 68 countries, we establish three major findings. First, individualism is negatively and significantly associated with bank regulatory capital, and the association is independent of the influence of formal institutional environments. Second, effective legal enforcement magnifies individualism's negative effect on bank regulatory capital. Finally, focusing on the United States, we also find that banks in individualistic states hold less regulatory capital than banks in collectivist states do. Effective state-level legal enforcement magnifies the effect of individualism. Our findings suggest that individualism constrains regulators, as regulatory guidelines or formal institutional factors operate very differently depending on the informal institutional environment.

Keywords: Individualism; Formal institutional environments; Legal enforcement; Regulatory capital (search for similar items in EconPapers)
JEL-codes: G21 G32 K12 M14 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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Working Paper: Individualism, formal institutional environments, and bank capital decisions (2022)
Working Paper: Individualism, formal institutional environment and bank capital decisions (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:76:y:2022:i:c:s0929119922000876

DOI: 10.1016/j.jcorpfin.2022.102244

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