Trust Matters: A Global Perspective on the Influence of Trust on Bank Market Risk

50 Pages Posted: 12 Oct 2023 Last revised: 9 Apr 2024

See all articles by Omneya Abdelsalam

Omneya Abdelsalam

Durham University

Antonios Chantziaras

Durham University

Nathan Joseph

Brunel University London

Nikolaos Tsileponis

The University of Manchester - Manchester Business School

Date Written: January 30, 2024

Abstract

This paper examines the role of societal and organizational trust in mitigating market risk within the banking sector. Using a global sample of 10,616 bank-year observations across 45 countries, we find that higher trust significantly reduces bank total and idiosyncratic risk. The risk-mitigating effect of societal trust becomes more pronounced for banks headquartered in countries with weaker investor protection, diminished legal rights, dissatisfaction with government economic policies, and higher political unrest. Our results suggest that trust serves as an alternative governance mechanism, substituting for ineffective formal institutions in reducing bank risk. These findings have important implications for financial regulation worldwide.

Keywords: Equity risk, idiosyncratic volatility, societal trust, organizational trust

JEL Classification: G10, G14, G21, G28, Z19

Suggested Citation

Abdelsalam, Omneya and Chantziaras, Antonios and Joseph, Nathan and Tsileponis, Nikolaos, Trust Matters: A Global Perspective on the Influence of Trust on Bank Market Risk (January 30, 2024). Available at SSRN: https://ssrn.com/abstract=4600115 or http://dx.doi.org/10.2139/ssrn.4600115

Omneya Abdelsalam

Durham University ( email )

Old Elvet
Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

Antonios Chantziaras

Durham University ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Nathan Joseph

Brunel University London ( email )

Kingston Lane
Uxbridge, UB8 3PH
United Kingdom

Nikolaos Tsileponis (Contact Author)

The University of Manchester - Manchester Business School ( email )

University of Bristol Business School
University of Bristol
Bristol, BS8 1TU
United Kingdom

HOME PAGE: http://research-information.bris.ac.uk/en/persons/nikos-tsileponis

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