Voice of the Customers: Local Trusting Culture and Consumers’ Whistle-Blowing in the Financial Services Industry

50 Pages Posted: 6 Nov 2017 Last revised: 26 Jan 2019

See all articles by Feng Jiang

Feng Jiang

University at Buffalo - School of Management

Yihui Pan

University of Utah - Department of Finance

Date Written: January 2019

Abstract

We use complaints filed to the Consumer Financial Protection Bureau to study the interplay between social norms and the effectiveness of consumer protection laws through private citizens’ whistle-blowing. We find that a higher local trusting attitude reduces the number of complaints filed against financial institutions in that place. Employing a difference-in-differences approach, we further find that, after the establishment of the Bureau, banks in low-trust areas reduce fees charged to consumers more compared to banks in high-trust areas. Our results suggest that the threat of consumer whistle-blowing affects how banks treat their customers, and they shed light on the interaction between informal culture and formal institutions—guardrails for economic exchange—as well as on stakeholders’ influence in corporate policies.

Keywords: Culture; Trust; Whistleblowing

JEL Classification: G21; G32

Suggested Citation

Jiang, Feng and Pan, Yihui, Voice of the Customers: Local Trusting Culture and Consumers’ Whistle-Blowing in the Financial Services Industry (January 2019). Available at SSRN: https://ssrn.com/abstract=3064809 or http://dx.doi.org/10.2139/ssrn.3064809

Feng Jiang

University at Buffalo - School of Management ( email )

344 Jacobs Management Center
Buffalo, NY 14260
United States
716-645-3225 (Phone)

Yihui Pan (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

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