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Individualism, formal institutional environments, and bank capital decisions

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  • Bitar, Mohammad
  • Tarazi, Amine

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

  • Bitar, Mohammad & Tarazi, Amine, 2022. "Individualism, formal institutional environments, and bank capital decisions," Journal of Corporate Finance, Elsevier, vol. 76(C).
  • Handle: RePEc:eee:corfin:v:76:y:2022:i:c:s0929119922000876
    DOI: 10.1016/j.jcorpfin.2022.102244
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    More about this item

    Keywords

    Individualism; Formal institutional environments; Legal enforcement; Regulatory capital;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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