Does National Culture Influence Malfeasance in Banks Around the World?
58 Pages Posted: 18 Aug 2023 Last revised: 6 Jan 2024
Date Written: November 16, 2023
We examine the extent to which national culture influences the severity of financial misconduct by banks globally. Using cultural background information of the country where a bank is headquartered, we detail strong evidence that individual over-confidence increases bank misconduct while uncertainty avoidance reduces it. The findings hold with alternative national culture and loss measures, using instrumental variable twostage least squares, excluding Anglo-Saxon countries, for US sanctions only and, for individual over-confidence, across states within the US. Regulatory capital stringency and supervisory independence can help to counter the influence of individual over-confidence on such losses. The findings outlined are relevant to regulators, policymakers, and banking practitioners seeking to mitigate malfeasance in financial institutions.
Keywords: National culture, Financial institutions, Misconduct risk
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