National Culture and Bank Liquidity Creation
49 Pages Posted: 19 Apr 2021
Date Written: April 19, 2021
This paper investigates the relationship between national culture and cross-country variations in bank liquidity creation. We hypothesize that banks in individualistic societies create more liquidity because of risk-taking and overconfidence bias. On the other hand, a better access to soft information likely facilitates liquidity creation by banks in collectivistic societies as well. Using a sample covering 66 countries over the 2001–2014 period, we find that individualism is associated with greater bank liquidity creation. This finding is robust to several sensitivity checks. The effect of individualism is stronger for larger banks, pointing to the importance of soft information on bank lending. Additional analysis suggests that uncertainty avoidance and power distance are related to lower bank liquidity creation.
Keywords: Bank liquidity, Bank risk, National culture
JEL Classification: G01, G15, G21
Suggested Citation: Suggested Citation