The Dimension of Bank Liquidity Creation: Culture Viewpoint

Chien Chiang Lee, Chih Wei Wang, Pei Chin Hong

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

This study investigates the effects of Hofstede’s four cultural indices (power distance, individualism, uncertainty avoidance, and masculinity) on bank liquidity creation using an international sample of 26,539 banks across 58 countries. We find that power distance, uncertainty avoidance, and masculinity decrease asset-side and off-balance sheet liquidity, but increase liability-side liquidity. By contrast, individualism increases asset-side and off-balance sheet liquidity but decreases liability-side liquidity. After excluding U.S. banks, our findings remain robust, suggesting that national culture is an important determinant of bank liquidity creation and that bank risk-taking has important implications that link national culture and bank liquidity creation. Regarding policymaking, our results indicate that the government should introduce regulations that restrict off-balance liquidity.

Original languageEnglish
Pages (from-to)3567-3588
Number of pages22
JournalEmerging Markets Finance and Trade
Volume58
Issue number12
DOIs
StatePublished - 2022

Keywords

  • G15
  • G21
  • Liquidity creation
  • Z10
  • individualism
  • masculinity
  • national culture
  • power distance
  • uncertainty avoidance

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