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|Title:||Social capital and bank stability|
Lobo, Gerald J.
Michael Lee-Chin & Family Institute for Strategic Business Studies
|Keywords:||Bank stability;Social capital;Bank failure and trouble;Risk taking;Accounting transparency|
|Series/Report no.:||Michael Lee-Chin & Family Institute for Strategic Business Studies Working Paper ; 2017-03|
|Abstract:||Using a sample of public and private banks, we study how social capital relates to bank stability. Social capital, which captures the level of cooperative norms in society, is likely to reduce opportunistic behavior (Jha and Chen 2015; Hasan et al. 2016) and, therefore, act as an informal monitoring mechanism. Consistent with our expectations, we find that banks in high social capital regions experienced fewer failures and less financial trouble during the 2007–2010 financial crisis than banks in low social capital regions. In addition, we find that social capital is negatively associated with abnormal risk-taking and positively associated with accounting transparency and accounting conservatism in the pre-crisis period of 2000–2006, indicating that risk-taking, accounting transparency, and accounting conservatism are possible channels through which social capital affected bank stability during the crisis. Valuation Insight: The paper provides a review of the literature and considers directions for future research regarding the relevance for company value of an expansion in distribution channels along the intensive and the extensive margins. In terms of factual measures of firm value the paper finds that the effects of distribution expansion are most clearly positive for firm value measured by shareholder value (as opposed to Tobin’s Q). The positive effects on firm value appear to be stronger for the addition of new channels than for the increase in distribution intensity.|
|Description:||54 p. ; Includes bibliographical references (pp. 32-36). ; "July 2017"; "An earlier version of a related paper was titled, “Social Capital and Bank Accounting Transparency.” We thank the Social Sciences and Humanities Research Council of Canada (SSHRC) and the Canadian Securities Institute Research Foundation for its financial support."|
|Appears in Collections:||Michael Lee-Chin & Family Institute for Strategic Business Studies Working Paper Series|
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