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Social capital and the viability of stakeholder-oriented firms: Evidence from Norwegian savings banks

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Author Info

  • Charlotte Ostergaard

    (Norwegian School of Management and Norges Bank)

  • Ibolya Schindele

    (Norwegian School of Management)

  • Bent Vale

    ()
    (Norges Bank (Central Bank of Norway))

Abstract

Stakeholder oriented governance systems are often thought to hamper efficiency. We show that social capital improves the viability of stakeholder-oriented firms in competitive markets. Studying exits from the population of Norwegian savings banks after deregulations, we find that banks located in communities with high social capital have a higher probability of survival. We propose that social capital facilitates collective decision-making, ensuring that banks internalize the preferences of the community in return for continued community patronage. Consistently, we find that in high social capital areas banks operate with lower interest rate margins, lower returns on assets, and lower loan losses.

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Bibliographic Info

Paper provided by Norges Bank in its series Working Paper with number 2009/14.

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Length: 49 pages
Date of creation: 11 Aug 2009
Date of revision:
Handle: RePEc:bno:worpap:2009_14

Note: First version: December 2007
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Related research

Keywords: Political economics; Strategic capital accumulation; Identifying popularity shocks;

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Cited by:
  1. Bøhren, Øyvind & Josefsen, Morten G., 2013. "Stakeholder rights and economic performance: The profitability of nonprofits," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4073-4086.
  2. Baele, Lieven & Farooq, Moazzam & Ongena, Steven, 2011. "Of Religion and Redemption: Evidence from Default on Islamic Loans," CEPR Discussion Papers 8504, C.E.P.R. Discussion Papers.
  3. Baele, L. & Farooq, M. & Ongena, S., 2012. "Of Religion and Redemption: Evidence from Default on Islamic Loans (Replaces CentER DP 2010-136)," Discussion Paper 2012-014, Tilburg University, Center for Economic Research.
  4. Behr, Patrick & Norden, Lars & Noth, Felix, 2013. "Financial constraints of private firms and bank lending behavior," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3472-3485.

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