Trust Matters: A Global Perspective on the Influence of Trust on Bank Market Risk

Abdelsalam, Omneya; Chantziaras, Antonios; Joseph, Nathan L.; Tsileponis, Nikolaos

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.

Citation

Abdelsalam, O., Chantziaras, A., Joseph, N. L., & Tsileponis, N. (2024). Trust Matters: A Global Perspective on the Influence of Trust on Bank Market Risk. Journal of International Financial Markets, Institutions and Money, 92, Article 101959. https://doi.org/10.1016/j.intfin.2024.101959

• Journal Article Type: Article
• Acceptance Date: Jan 31, 2024
• Online Publication Date: Feb 6, 2024
• Publication Date: Feb 6, 2024
• Deposit Date: Feb 2, 2024
• Publicly Available Date: Feb 6, 2024
• Journal: Journal of International Financial Markets, Institutions and Money
• Print ISSN: 1042-4431
• Electronic ISSN: 1873-0612
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 92
• Article Number: 101959
• DOI: https://doi.org/10.1016/j.intfin.2024.101959
• Public URL: https://durham-repository.worktribe.com/output/2189556