The Role of Social Capital in Financial Development

58 Pages Posted: 2 May 2000 Last revised: 2 Sep 2022

See all articles by Luigi Guiso

Luigi Guiso

Einaudi Institute for Economics and Finance (EIEF); Einaudi Institute for Economics and Finance

Paola Sapienza

Northwestern University - Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

Date Written: February 2000

Abstract

To identify the effect of social capital on financial development, we exploit the well-known differences in social capital and trust (Banfield (1958), Putnam (1993)) across different parts of Italy, using microeconomic data on households and firms. In areas of the country with high levels of social trust, households invest less in cash and more in stock, use more checks, have higher access to institutional credit, and make less use of informal credit. In these areas, firms also have more access to credit and are more likely to have multiple shareholders. The effect of trust is stronger where legal enforcement is weaker and among less-educated people. The behavior of movers is mainly affected by the level of trust of the environment where they live, but a significant fraction of the effect is also due to the level of trust prevailing in the province where they grew up.

Suggested Citation

Guiso, Luigi and Guiso, Luigi and Sapienza, Paola and Zingales, Luigi, The Role of Social Capital in Financial Development (February 2000). NBER Working Paper No. w7563, Available at SSRN: https://ssrn.com/abstract=217534

Luigi Guiso (Contact Author)

Einaudi Institute for Economics and Finance (EIEF) ( email )

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Einaudi Institute for Economics and Finance ( email )

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rome, 00187
Italy

Paola Sapienza

Northwestern University - Kellogg School of Management - Department of Finance ( email )

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United States
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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Luigi Zingales

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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United States

Centre for Economic Policy Research (CEPR)

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United Kingdom

European Corporate Governance Institute (ECGI) ( email )

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Belgium

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