Individualism, formal institutional environments, and bank capital decisions

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.

Citation

Bitar, M., & Tarazi, A. (2022). Individualism, formal institutional environments, and bank capital decisions. Journal of Corporate Finance, 76, Article 102244. https://doi.org/10.1016/j.jcorpfin.2022.102244

• Journal Article Type: Article
• Acceptance Date: Jul 8, 2022
• Online Publication Date: Aug 5, 2022
• Publication Date: Oct 1, 2022
• Deposit Date: Aug 1, 2022
• Publicly Available Date: Feb 6, 2024
• Journal: Journal of Corporate Finance
• Print ISSN: 0929-1199
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 76
• Article Number: 102244
• DOI: https://doi.org/10.1016/j.jcorpfin.2022.102244
• Keywords: Individualism; formal institutional environments; legal enforcement; regulatory capital
• Public URL: https://nottingham-repository.worktribe.com/output/9580157
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S0929119922000876
• Additional Information: This article is maintained by: Elsevier; Article Title: Individualism, formal institutional environments, and bank capital decisions; Journal Title: Journal of Corporate Finance; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.jcorpfin.2022.102244