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Individualism, formal institutional environments, and bank capital decisions

Author

Listed:
  • Mohammad Bitar
  • 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)

Abstract

We examine how individualism affects bank capital decisions worldwide and in the United States at the state level. Based on a sample of 7034 banks in 68 countries, we establish three major findings. First, individualism is negatively and significantly associated with bank regulatory capital, and the association is independent of the influence of formal institutional environments. Second, effective legal enforcement magnifies individualism's negative effect on bank regulatory capital. Finally, focusing on the United States, we also find that banks in individualistic states hold less regulatory capital than banks in collectivist states do. Effective state-level legal enforcement magnifies the effect of individualism. Our findings suggest that individualism constrains regulators, as regulatory guidelines or formal institutional factors operate very differently depending on the informal institutional environment.

Suggested Citation

  • Mohammad Bitar & Amine Tarazi, 2022. "Individualism, formal institutional environments, and bank capital decisions," Post-Print hal-04681694, HAL.
    • Handle: RePEc:hal:journl:hal-04681694
    DOI: 10.1016/j.jcorpfin.2022.102244
    as

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