Is bank misconduct related to social capital? Evidence from U.S. banks
83 Pages Posted: 13 Nov 2018 Last revised: 5 Apr 2024
Date Written: September 14, 2018
Abstract
This paper investigates whether social capital plays a role in bank misconduct. I find that U.S. banks headquartered in high social capital areas, as indicated by the strength of civic norms and the density of social networks, are less likely to face enforcement actions. This relation is mainly significant for banks with a lower geographical dispersion, and holds in a range of robustness and endogeneity tests. Additional results based on the classes of enforcement actions, components of social capital, risk-taking, opacity and bank actions associated with negative externalities support that the main results are largely attributed to social capital's role in exerting external discipline, which prevents misconduct-related behaviors in banks.
Keywords: banks, social capital, misconduct, externalities
JEL Classification: G21, G28
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