Social Capital and Bank Misconduct

79 Pages Posted: 13 Nov 2018 Last revised: 3 Dec 2019

Date Written: September 14, 2018

Abstract

Using enforcement actions issued by US bank regulators to identify wrongdoing, I find that banks headquartered in counties with higher levels of social capital (as captured by civic norms and social networks) are less likely to be involved in misconduct. This result holds in a range of robustness and endogeneity tests and is supported by an analysis of bank executives’ social capital. The effect of local levels of social capital on misconduct is more pronounced for less geographically dispersed banks. I also show that banks involved in misconduct lose more market share in counties with higher levels of social capital. Taken together, these findings indicate that social capital acts as an external monitoring mechanism preventing and punishing misconduct.

Keywords: banks, social capital, misconduct, market share

JEL Classification: G21, G28

Suggested Citation

Martin-Flores, Jose-Maria, Social Capital and Bank Misconduct (September 14, 2018). Available at SSRN: https://ssrn.com/abstract=3249049 or http://dx.doi.org/10.2139/ssrn.3249049

Jose-Maria Martin-Flores (Contact Author)

CUNEF ( email )

Calle de Leonardo Prieto Castro, 2
Madrid, Madrid 28040
Spain

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