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Risk culture and cost of capital – Insight from European banks

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  • Acheampong, Albert
  • Ibeji, Ngozi

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.

Suggested Citation

  • Acheampong, Albert & Ibeji, Ngozi, 2024. "Risk culture and cost of capital – Insight from European banks," Economics Letters, Elsevier, vol. 243(C).
    • Handle: RePEc:eee:ecolet:v:243:y:2024:i:c:s0165176524003902
    DOI: 10.1016/j.econlet.2024.111906
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    More about this item

    Keywords

    Risk culture; Cost of capital; Risk management; Textual analysis; European banks;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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