National Culture and Bank Liquidity Creation

49 Pages Posted: 19 Apr 2021

See all articles by Narjess Boubakri

Narjess Boubakri

American University of Sharjah - School of Business and Management; HEC Montreal - Department of Finance

Zhongyu (Edward) Cao

School of Economic & Trade, Hunan University

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Omrane Guedhami

University of South Carolina - Moore School of Business

Xinming Li

University of South Carolina, Darla Moore School of Business, Department of Finance

Date Written: April 19, 2021

Abstract

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

Boubakri, Narjess and Cao, Zhongyu and El Ghoul, Sadok and Guedhami, Omrane and Li, Xinming, National Culture and Bank Liquidity Creation (April 19, 2021). Available at SSRN: https://ssrn.com/abstract=3829416 or http://dx.doi.org/10.2139/ssrn.3829416

Narjess Boubakri

American University of Sharjah - School of Business and Management ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

HOME PAGE: http://www.aus.edu

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Zhongyu Cao

School of Economic & Trade, Hunan University ( email )

China

Sadok El Ghoul (Contact Author)

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Xinming Li

University of South Carolina, Darla Moore School of Business, Department of Finance ( email )

1014 Greene Street
Columbia, SC 29208
United States

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