Trust matters: A global perspective on the influence of trust on bank market risk

Omneya Abdelsalam; Antonios Chantziaras; Nathan Lael Joseph; Nikolaos Tsileponis

doi:10.1016/j.intfin.2024.101959

Trust matters: A global perspective on the influence of trust on bank market risk

Omneya Abdelsalam, Antonios Chantziaras, Nathan Lael Joseph, Nikolaos Tsileponis^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

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.

Original language	English
Article number	101959
Number of pages	22
Journal	Journal of International Financial Markets, Institutions and Money
Volume	92
DOIs	https://doi.org/10.1016/j.intfin.2024.101959
Publication status	Published - Apr 2024

Keywords

Equity risk
Idiosyncratic volatility
Organizational trust
Societal trust

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10.1016/j.intfin.2024.101959

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title = "Trust matters: A global perspective on the influence of trust on bank market risk",

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, Organizational trust, Societal trust",

author = "Omneya Abdelsalam and Antonios Chantziaras and Joseph, {Nathan Lael} and Nikolaos Tsileponis",

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year = "2024",

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AU - Abdelsalam, Omneya

AU - Chantziaras, Antonios

AU - Joseph, Nathan Lael

AU - Tsileponis, Nikolaos

PY - 2024/4

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N2 - 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.

AB - 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.

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KW - Idiosyncratic volatility

KW - Organizational trust

KW - Societal trust

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JO - Journal of International Financial Markets, Institutions and Money

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Trust matters: A global perspective on the influence of trust on bank market risk

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Keywords

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