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

  • Charlotte Ostergaard

    (Norwegian School of Management and Norges Bank)

  • Ibolya Schindele

    (Norwegian School of Management)

  • Bent Vale


    (Norges Bank (Central Bank of Norway))

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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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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  1. Tiroley, Jean, 2000. "Corporate Governance," CEI Working Paper Series 2000-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  2. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1251-1288.
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  9. La Porta, Rafael, et al, 1997. "Trust in Large Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 333-38, May.
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  11. Fauver, Larry & Fuerst, Michael E., 2006. "Does good corporate governance include employee representation? Evidence from German corporate boards," Journal of Financial Economics, Elsevier, vol. 82(3), pages 673-710, December.
  12. Abhijit V. Banerjee & Timothy Besley & Timothy W. Guinnane, 1994. "Thy Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 491-515.
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