Culture and the capital-performance nexus in dual banking systems

Bitar, Mohammad; Hassan, M. Kabir; Saad, Wadad

Abstract

While recent surveys have taken a special interest in culture to explain the failure of existing regulation, empirical evidence on the role of culture in influencing the regulation-performance link is still largely unexplored. In this paper, we ask the following: Should regulators and policy makers make room for culture as an effective tool for a successful bank regulatory environment? We identify three proxies for cultural values derived from Hofstede (1980, 2001) and the World Values Survey and investigate to what extent individualism, masculinity, and trust can enhance or impede the regulation-performance link for conventional and Islamic banks. Analyzing a panel of 729 banks operating in 33 countries from 1999 to 2013, our paper provides empirical evidence that cultural values enhance the regulation-performance link for the two bank types. Our results have important policy implications: our paper represents a first initiative and provides evidence that culture has merits and can be used as an additional tool to implement regulatory guidelines in a successful way. JEL classification: G21, G28

Citation

Bitar, M., Hassan, M. K., & Saad, W. (2020). Culture and the capital-performance nexus in dual banking systems. Economic Modelling, 87, 34-58. https://doi.org/10.1016/j.econmod.2019.07.003

• Journal Article Type: Article
• Acceptance Date: Jul 10, 2019
• Online Publication Date: Jul 15, 2019
• Publication Date: 2020-05
• Deposit Date: Oct 3, 2019
• Publicly Available Date: Jul 16, 2020
• Journal: Economic Modelling
• Print ISSN: 0264-9993
• Electronic ISSN: 0264-9993
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 87
• Pages: 34-58
• DOI: https://doi.org/10.1016/j.econmod.2019.07.003
• Keywords: Regulatory capital; Regulatory environment; Individualism; Masculinity; Trust; Profitability
• Public URL: https://nottingham-repository.worktribe.com/output/2741447
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0264999318314718?via%3Dihub