Retrospective wisdom: Long-term orientation and the rating downgrades of financial institutions

Huong Dieu Dang ()
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Huong Dieu Dang: University of Canterbury, https://www.canterbury.ac.nz

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: This study examines the effects of Hofstede’s long-term orientation (LTO) on the rating changes of financial institutions (FIs) in 50 countries. The impacts of LTO on rating downgrades are stronger for the sample of speculative grade-rated FIs and more pronounced for crises sample. The significance effect of LTO on downgrades is robust to various tests and is unlikely due to endogeneity. Switching from a short term- to a long term (LT)-oriented culture lowers the downgrade risk of an FI by 47%, a speculative-grade rated FI by 56%, and an FI of a country in crisis by 58%. LT-oriented societies promote responsible borrowing and a good payment culture. A strong preference for long-term business survival motivates banks in LToriented nations to maintain a more prudent bank credit to bank deposits ratio, particularly during crises. Incorporating LTO in banking regulations may encourage banks to adopt longterm perspectives and finance long-term sustainable projects.

Keywords: Long-term orientation; National culture; Hofstede; World Value Survey; Rating downgrades (search for similar items in EconPapers)
JEL-codes: G24 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2023-05-01
New Economics Papers: this item is included in nep-ban and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:23/06

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