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Disentangling the effect of Trust on Bank Lending

Author

Listed:
  • Christina Nicolas
  • Amine Tarazi

    (UNILIM - Université de Limoges, LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges, IUF - Institut universitaire de France - M.E.N.E.S.R. - Ministère de l'Education nationale, de l’Enseignement supérieur et de la Recherche)

  • Gamze Ozturk Danisman

Abstract

This paper studies the effect of trust on bank lending using a sample of commercial banks in 34 countries around the world. We distinguish between two forms of trust: In-group trust, which we define as the trust in people we know, and Out-group trust, which we define as the trust in people we meet for the first time. We find that Out-group trust is positively and significantly associated with bank lending. A closer look shows that this effect only holds in countries with relatively lower levels of formal institutional and judicial development. As for In-group trust, we find that its influence on bank lending is dependent on the level of informal lending available in each country. Overall, this paper provides novel evidence on the importance of trust and the different mechanisms by which it influences bank lending around the world.

Suggested Citation

  • Christina Nicolas & Amine Tarazi & Gamze Ozturk Danisman, 2023. "Disentangling the effect of Trust on Bank Lending," Post-Print hal-04678219, HAL.
    • Handle: RePEc:hal:journl:hal-04678219
    DOI: 10.1016/j.jebo.2023.04.021
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