Social Capital and the Viability of Stakeholder-Oriented Firms: Evidence from Norwegian Savings Banks
53 Pages Posted: 17 Feb 2009 Last revised: 4 May 2010
Date Written: July 31, 2009
Abstract
Stakeholder oriented governance systems are often thought to hamper efficiency. We show that social capital improves the viability of stakeholder-oriented firms in competitive markets. Studying exits from the population of Norwegian savings banks after deregulations, we find that banks located in communities with high social capital have a higher probability of survival. We propose that social capital facilitates collective decision-making, ensuring that banks internalize the preferences of the community in return for continued community patronage. Consistently, we find that in high social capital areas banks operate with lower interest rate margins, lower returns on assets, and lower loan losses.
Keywords: Nonprofit Firms, Social Capital, Financial Intermediation, Corporate Governance
JEL Classification: G21, G32, L31
Suggested Citation: Suggested Citation
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