Risk culture and cost of capital – Insight from European banks

Albert Acheampong and Ngozi Ibeji

Economics Letters, 2024, vol. 243, issue C

Abstract: This study examines the impact of risk culture on the cost of capital (i.e., WACC, Cost of equity and cost of debt) in European banks. We measure risk culture using comprehensive textual analysis approach. Based on 134 banks from 2005 to 2022, findings reveal that risk culture is negatively associated with all cost of capital measures. This indicates that robust risk culture reduces information asymmetry and boosts investor confidence, leading to lower costs of capital. Our findings reflect the importance of aligning risk management practices with regulatory requirements and investor expectations.

Keywords: Risk culture; Cost of capital; Risk management; Textual analysis; European banks (search for similar items in EconPapers)
JEL-codes: G20 G21 G41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:243:y:2024:i:c:s0165176524003902

DOI: 10.1016/j.econlet.2024.111906

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