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Social capital and the cost of bank equity: Cross-country evidence

Fotios Pasiouras and Anis Samet

Journal of Banking & Finance, 2022, vol. 141, issue C

Abstract: We examine, for the first time in the literature, the impact of social capital on the cost of bank equity worldwide. We reach two interesting conclusions. First, consistent with the view that the social capital of a region can constrain managerial opportunistic behavior, enhance the flow of information, and mitigate moral hazard and agency concerns, we find that banks from countries with higher social capital operate with lower cost of equity. Second, consistent with the view of a substitutional relationship between formal and informal institutions we find that the association of social capital with the cost of bank equity becomes weaker in countries with strong formal institutions. The results hold while controlling for numerous bank-level and country-level characteristics, as well as when we account for endogeneity with the use of an instrumental variables approach.

Keywords: Social capital; Cost of equity; Banks; Agency problems; Trust (search for similar items in EconPapers)
JEL-codes: G32 G39 M41 O16 Z13 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jbankfin.2022.106535

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