The Dimension of Bank Liquidity Creation: Culture Viewpoint

Chien-Chiang Lee (), Chih-Wei Wang and Pei-Chin Hong

Emerging Markets Finance and Trade, 2022, vol. 58, issue 12, 3567-3588

Abstract: This study investigates the effects of Hofstede’s four cultural indices (power distance, individualism, uncertainty avoidance, and masculinity) on bank liquidity creation using an international sample of 26,539 banks across 58 countries. We find that power distance, uncertainty avoidance, and masculinity decrease asset-side and off-balance sheet liquidity, but increase liability-side liquidity. By contrast, individualism increases asset-side and off-balance sheet liquidity but decreases liability-side liquidity. After excluding U.S. banks, our findings remain robust, suggesting that national culture is an important determinant of bank liquidity creation and that bank risk-taking has important implications that link national culture and bank liquidity creation. Regarding policymaking, our results indicate that the government should introduce regulations that restrict off-balance liquidity.

Date: 2022
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DOI: 10.1080/1540496X.2022.2060075

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