National Culture, Institutional Quality, and Financial Development: International Evidence Before and After Financial Crisis
Abstract
:1. Introduction
2. Literature Review
2.1. Financial Development: Common Determinants
2.2. Institutional Quality and Financial Development
2.3. Hofstede Cultural Dimensions and Financial Development
2.3.1. Power Distance Index and Financial Development
2.3.2. Individualism Versus Collectivism and Financial Development
2.3.3. Masculinity Versus Femininity and Financial Development
2.3.4. Uncertainty Avoidance Index and Financial Development
2.3.5. Long-Term Versus Short-Term Normative Orientation and Financial Development
2.3.6. Indulgence Versus Restraint and Financial Development
3. Empirical Design
3.1. Data and Measurements
3.2. Econometric Models
4. Results and Discussions
4.1. Summary of the Main Findings
4.2. Tracking Endogeneity Problem
4.3. Asymmetric Impact of the Financial Crisis
4.4. Robustness Tests—KAOPEN as Alternate Dependent Variable
4.5. Robustness Tests: PVAR and Impulse Response Function
4.6. Discussions and Implications
5. Conclusions
Author Contributions
Funding
Institutional Review Board Statement
Data Availability Statement
Acknowledgments
Conflicts of Interest
1 | KAOPENit measures financial openness for country i at time t. We used the Chinn–Ito index (KAOPEN) from Chinn and Ito (2006, 2008) which measure a country’s degree of capital account openness. The index is based on the binary dummy variables that classify the presentation of restrictions on cross-border financial transactions. |
References
- Abrams, D., & Hogg, M. A. (1988). Comments on the motivational status of self-esteem in social identity and intergroup discrimination. European Journal of Social Psychology, 18(4), 317–334. [Google Scholar] [CrossRef]
- Aggarwal, R., Erel, I., Ferreira, M., & Matos, P. (2011). Does governance travel around the world? Evidence from institutional investors. Journal of Financial Economics, 100(1), 154–181. [Google Scholar] [CrossRef]
- Aggarwal, R., Faccio, M., Guedhami, O., & Kwok, C. C. Y. (2016). Culture and finance: An introduction. Journal of Corporate Finance, 41, e466–e474. [Google Scholar] [CrossRef]
- Aggarwal, R., & Goodell, J. W. (2014). National cultural dimensions in finance and accounting scholarship: An important gap in the literature. Journal of Behavioral and Experimental Finance, 1, 1–12. [Google Scholar] [CrossRef]
- Aggarwal, R., Kearney, C., & Lucey, B. (2012). Gravity and culture in foreign portfolio investment. Journal of Banking & Finance, 36(2), 525–538. [Google Scholar]
- Aleqedat, H. Q. (2021). Does cultural hofstede dimension “Indulgence versus Restraint” impact the corporate performance. Journal of Sustainable Community Development (JSCD), 3(2), 111–118. [Google Scholar] [CrossRef]
- Ali, M. A., Hasan, R., & Ashraf, S. (2018). The interaction between financial inclusion, financial development, and institutional quality. Journal of Financial Stability, 33, 269–282. [Google Scholar]
- Aluko, O. A., & Ajayi, M. A. (2018). Determinants of banking sector development: Evidence from Sub-Saharan African countries. Borsa Istanbul Review, 18(2), e122–e139. [Google Scholar] [CrossRef]
- Anderson, C. W., Fedenia, M., Hirschey, M., & Skiba, H. (2011). Cultural influences on home bias and international diversification by institutional investors. Journal of Banking & Finance, 35(4), 916–934. [Google Scholar]
- Ang, J. B. (2019). Culture, legal origins, and financial development. Economic Inquiry, 57(2), 1016–1037. [Google Scholar] [CrossRef]
- Arcand, J. L., & Fafchamps, M. (2012). Matching in community-based organizations. Journal of Development Economics, 98(2), 203–219. [Google Scholar] [CrossRef]
- Ashraf, B. N., Zheng, C., & Arshad, S. (2016). Effects of national culture on bank risk-taking behavior. Research in International Business and Finance, 37, 309–326. [Google Scholar] [CrossRef]
- Barke, R. P., Jenkins-Smith, H., & Slovic, P. (1997). Risk perceptions of men and women scientists. Social Science Quarterly, 78(1), 167–176. [Google Scholar]
- Beck, T., Demirgüç-Kunt, A., & Levine, R. E. (2001). Law, politics, and finance. Available online: https://ssrn.com/abstract=269118 (accessed on 10 July 2022).
- Beugelsdijk, S., Maseland, R., & Van Hoorn, A. (2015). Are scores on H ofstede’s dimensions of national culture stable over time? A cohort analysis. Global Strategy Journal, 5(3), 223–240. [Google Scholar] [CrossRef]
- Bialowolski, P., Xiao, J. J., & Weziak-Bialowolska, D. (2023). National culture and financial capability: A global perspective. Social Indicators Research, 170(3), 877–891. [Google Scholar] [CrossRef]
- Bjørnskov, C. (2008). Social trust and fractionalization: A possible reinterpretation. European Sociological Review, 24(3), e271–e283. [Google Scholar] [CrossRef]
- Bord, R. J., & O’Connor, R. E. (1997). The gender gap in environmental attitudes: The case of perceived vulnerability to risk. Social Science Quarterly, 78, 830–840. [Google Scholar]
- Boubakri, N., & Saffar, W. (2016). Culture and externally financed firm growth. Journal of Corporate Finance, 41, 502–520. [Google Scholar] [CrossRef]
- Boyd, J. H., Levine, R., & Smith, B. D. (2001). The impact of inflation on financial sector performance. Journal of Monetary Economics, 47(2), 221–248. [Google Scholar] [CrossRef]
- Boyd, R., & Richerson, P. J. (1988). Culture and the evolutionary process. University of Chicago Press. [Google Scholar]
- Calderón, C., & Liu, L. (2003). The direction of causality between financial development and economic growth. Journal of Development Economics, 72(1), 321–334. [Google Scholar] [CrossRef]
- Canova, F., & Ciccarelli, M. (2013). Panel Vector Autoregressive Models: A Survey, Advances in Econometrics. In VAR models in macroeconomics—New developments and applications: Essays in honor of Christopher A. Sims (pp. 205–246). Emerald Group Publishing Limited. [Google Scholar]
- Chinn, M. D., & Ito, H. (2006). What matters for financial development? Capital controls, institutions, and interactions. Journal of Development Economics, 81(1), 163–192. [Google Scholar] [CrossRef]
- Chinn, M. D., & Ito, H. (2008). A new measure of financial openness. Journal of Comparative Policy Analysis, 10(3), 309–322. [Google Scholar] [CrossRef]
- Chui, A. C., Titman, S., & Wei, K. J. (2010). Individualism and momentum around the world. The Journal of Finance, 65(1), 361–392. [Google Scholar] [CrossRef]
- Çera, G., Khan, K. A., Belas, J., & Ribeiro, H. N. R. (2020). The role of financial capability and culture in financial satisfaction. Economic Papers: A Journal of Applied Economics and Policy, 39(4), 389–406. [Google Scholar] [CrossRef]
- Dahl, S. (2004). Intercultural research: The current state of knowledge. Middlesex University Discussion Paper No. 26. Available online: https://ssrn.com/abstract=658202 (accessed on 26 June 2022).
- Darsono, S. N. A. C., Wong, W. K., & Thai, N. T. (2021). Cultural dimensions and sustainable stock exchanges returns in the Asian region. Journal of Accounting and Investment, 22(1), 133–149. [Google Scholar] [CrossRef]
- Das, T. K., & Teng, B. S. (2004). The risk-based view of trust: A conceptual framework. Journal of Business and Psychology, 19(1), 85–116. [Google Scholar] [CrossRef]
- de Jong, E., & Semenov, R. (2002). Cross-country differences in stock market development: A cultural view. Available online: https://ssrn.com/abstract=301374 (accessed on 26 June 2022).
- de Oliveira, A. R. C. (2016). The impact of culture and corporate governance in dividend policy: Evidence from emerging and developed countries [Doctoral Dissertation, Instituto Politecnico de Leiria (Portugal)]. [Google Scholar]
- Dutta, N., & Mukherjee, D. (2012). Is culture a determinant of financial development? Applied Economics Letters, 19(6), 585–590. [Google Scholar] [CrossRef]
- Earley, P. C. (1989). Social loafing and collectivism: A comparison of the United States and the People’s Republic of China. Administrative Science Quarterly, 34(4), 565–581. [Google Scholar] [CrossRef]
- Economou, F. (2019). Economic freedom and asymmetric crisis effects on FDI inflows: The case of four South European economies. Research in International Business and Finance, 49, 114–126. [Google Scholar] [CrossRef]
- Falahaty, M., & Hook, L. S. (2013). The effect of financial development on economic growth in the MENA region. Journal of Economic Cooperation & Development, 34(3), 35–60. [Google Scholar]
- Falk, A., Becker, A., Dohmen, T., Enke, B., Huffman, D., & Sunde, U. (2018). Global evidence on economic preferences. The Quarterly Journal of Economics, 133(4), 1645–1692. [Google Scholar] [CrossRef]
- Fernandez-Perez, A., Gilbert, A., Indriawan, I., & Nguyen, N. H. (2021). COVID-19 pandemic and stock market response: A culture effect. Journal of Behavioral and Experimental Finance, 29, 100454. [Google Scholar] [CrossRef] [PubMed]
- Franke, R. H., Hofstede, G., & Bond, M. H. (1991). Cultural roots of economic performance: A research note. Strategic Management Journal, 12(S1), 165–173. [Google Scholar] [CrossRef]
- Gleason, K. C., Mathur, L. K., & Mathur, I. (2000). The interrelationship between culture, capital structure, and performance: Evidence from European retailers. Journal of Business Research, 50(2), 185–191. [Google Scholar] [CrossRef]
- Goodell, J. W., Kumar, S., Lahmar, O., & Pandey, N. (2023). A bibliometric analysis of cultural finance. International Review of Financial Analysis, 85, 102442. [Google Scholar] [CrossRef]
- Growiec, K., & Growiec, J. (2014). Social capital, trust, and multiple equilibria in economic performance. Macroeconomic Dynamics, 18(2), 282–315. [Google Scholar] [CrossRef]
- Guiso, L., Sapienza, P., & Zingales, L. (2004). The role of social capital in financial development. American Economic Review, 94(3), 526–556. [Google Scholar] [CrossRef]
- Gwama, M. (2015). Explaining weak financial development in Africa. African Review of Economics and Finance, 6(2), 69–87. [Google Scholar]
- Haga, M., Tortella, P., Asonitou, K., Charitou, S., Koutsouki, D., Fumagalli, G., & Sigmundsson, H. (2018). Cross-cultural aspects: Exploring motor competence among 7-to 8-year-old children from Greece, Italy, and Norway. Sage Open, 8(2), 2158244018768381. [Google Scholar] [CrossRef]
- Henisz, W. J. (2004). Political institutions and policy volatility. Economics & Politics, 16(1), 1–27. [Google Scholar]
- Hofstede, G. (1980). Culture’s consequences: International differences in work-related values (Vol. 5). Sage Publications. [Google Scholar]
- Hofstede, G. (1983). The cultural relativity of organizational practices and theories. Journal of International Business Studies, 14(2), 75–89. [Google Scholar] [CrossRef]
- Hofstede, G. (1991). Empirical models of cultural differences. Swets & Zeitlinger Publishers. [Google Scholar]
- Hofstede, G. (2001). Culture’s consequences: Comparing values, behaviors, institutions and organizations across nations. Sage Publications. [Google Scholar]
- Hofstede, G., Hofstede, G. J., & Minkov, M. (2010). Cultures and organizations: Software of the mind. McGraw-Hill. [Google Scholar]
- Holtz-Eakin, D., Newey, W., & Rosen, H. S. (1988). Estimating vector autoregressions with panel data. Econometrica: Journal of the Econometric Society, 1371–1395. [Google Scholar] [CrossRef]
- Hondroyiannis, G., & Papapetrou, E. (2001). Macroeconomic influences on the stock market. Journal of Economics and Finance, 25(1), 33–49. [Google Scholar] [CrossRef]
- Hui, C. H. (1988). Measurement of individualism-collectivism. Journal of Research in Personality, 22(1), 17–36. [Google Scholar] [CrossRef]
- Huybens, E., & Smith, B. D. (1999). Inflation, financial markets and long-run real activity. Journal of Monetary Economics, 43(2), 283–315. [Google Scholar] [CrossRef]
- Ibrahim, M., & Sare, Y. A. (2018). Determinants of financial development in Africa: How robust is the interactive effect of trade openness and human capital? Economic Analysis and Policy, 60, 18–26. [Google Scholar] [CrossRef]
- Izadi, S. (2015). Two essays in finance and economics: “investment opportunities in commodity and stock markets for G7 countries” and “global and local factors affecting sovereign yield spreads” [Ph.D. Dissertation, University of New Orleans]. Available online: https://scholarworks.uno.edu/td/2087 (accessed on 25 December 2022).
- Izadi, S. (2021). Are exchange-traded notes predictable? An empirical investigation of commodity ETNs. The Journal of Investing, 30(3), 79–91. [Google Scholar] [CrossRef]
- Izadi, S., Rashid, M., & Izadi, P. (2022). FDI inflow and financial channels: International evidence before and after crises. Journal of Financial Economic Policy, 14(1), 24–42. [Google Scholar] [CrossRef]
- Izadi, S., Rashid, M., & Izadi, P. (2023). Direct and indirect influence of national culture on foreign direct investment. Research in International Business and Finance, 66, 102037. [Google Scholar] [CrossRef]
- Karolyi, G. A. (2016). The gravity of culture for finance. Journal of Corporate Finance, 41, 610–625. [Google Scholar] [CrossRef]
- Kaufmann, D., Kraay, A., & Mastruzzi, M. (2011). The worldwide governance indicators: Methodology and analytical issues1. Hague Journal on the Rule of Law, 3(2), 220–246. [Google Scholar] [CrossRef]
- Keillor, B., Hauser, W., & Griffin, A. (2009). The relationship between political risk, national culture and foreign direct investment as a market entry strategy: Perspectives from US firms. Innovative Marketing, 5(1), 48–54. [Google Scholar]
- Khamphengvong, V., Xia, E., & Srithilat, K. (2018). Inflow determinants of foreign direct investment. Human Systems Management, 37(1), 57–66. [Google Scholar] [CrossRef]
- Khan, M. A., Gu, L., Khan, M. A., & Meyer, N. (2022). The effects of national culture on financial sector development: Evidence from emerging and developing economies. Borsa Istanbul Review, 22(1), 103–112. [Google Scholar] [CrossRef]
- Khan, M. A., Khan, M. A., Abdulahi, M. E., Liaqat, I., & Shah, S. S. H. (2019). Institutional quality and financial development: Evidence from developing and emerging economies. Journal of Multinomial Financial Management, 4(2), 98–122. [Google Scholar] [CrossRef]
- Khan, M. A., Máté, D., Abdulahi, M. E., Sadaf, R., Khan, M. A., Popp, J., & Oláh, J. (2024). Do institutional quality, innovation and technologies promote financial market development? European Journal of International Management, 22(3), 484–507. [Google Scholar] [CrossRef]
- Kwok, C. C., & Tadesse, S. (2006). National culture and financial systems. Journal of International Business Studies, 37(2), 227–247. [Google Scholar] [CrossRef]
- Kyriacou, A. P. (2016). Individualism–collectivism, governance and economic development. European Journal of Political Economy, 42, 91–104. [Google Scholar] [CrossRef]
- Lal, D. (1999). Individualism, economic development and the decline of the western family. Family Matters, 1(54), 76–78. [Google Scholar]
- Law, S. H., & Singh, N. (2014). Does too much finance harm economic growth? Journal of Banking & Finance, 41, 36–44. [Google Scholar]
- Le, T. H., Kim, J., & Lee, M. (2016). Institutional quality, trade openness, and financial sector development in Asia: An empirical investigation. Emerging Markets Finance and Trade, 52(5), 1047–1059. [Google Scholar] [CrossRef]
- Levine, R. (2004). The corporate governance of banks: A concise discussion of concepts and evidence (Vol. 3404). World Bank Publications. [Google Scholar]
- Levine, R., & Zervos, S. (1996). Stock Market Development and Long-Run Growth. The World Bank Economic Review, 10(2), 323–339. [Google Scholar] [CrossRef]
- Love, I., & Zicchino, L. (2006). Financial development and dynamic investment behavior: Evidence from panel VAR. The Quarterly Review of Economics and Finance, 46(2), 190–210. [Google Scholar] [CrossRef]
- Lucey, B. M., & Zhang, Q. (2010). Does cultural distance matter in international stock market comovement? Evidence from emerging economies around the world. Emerging Markets Review, 11(1), 62–78. [Google Scholar] [CrossRef]
- Lundeberg, M. A., Fox, P. W., & Punćcohaŕ, J. (1994). Highly confident but wrong: Gender differences and similarities in confidence judgments. Journal of Educational Psychology, 86(1), 114. [Google Scholar] [CrossRef]
- Mahawiya, S. (2015). Financial sector development, inflation and openness: A comparative panel study of ECOWAS and SADC. Economic Research Southern Africa Working Paper, 528, 1–37. [Google Scholar]
- Masten, A. B., Coricelli, F., & Masten, I. (2008). Non-linear growth effects of financial development: Does financial integration matter? Journal of International Money and Finance, 27(2), 295–313. [Google Scholar] [CrossRef]
- Meier-Pesti, K., & Penz, E. (2008). Sex or gender? Expanding the sex-based view by introducing masculinity and femininity as predictors of financial risk taking. Journal of Economic Psychology, 29(2), e180–e196. [Google Scholar] [CrossRef]
- Mihet, R. (2013). Effects of culture on firm risk-taking: A cross-country and cross-industry analysis. Journal of Cultural Economics, 37(1), 109–151. [Google Scholar] [CrossRef]
- Nadler, C., & Breuer, W. (2019). Cultural Finance as a research field: An evaluative survey. Journal of Business Economics, 89(2), 191–220. [Google Scholar] [CrossRef]
- Noman, A., & Naka, A. (2015). Premiums and returns of iPath exchange traded notes. Journal of Asset Management, 16(6), 401–414. [Google Scholar] [CrossRef]
- Okafor, L. E., Hassan, M. K., Rashid, M., Prabu, D., & Sabit, A. (2022). Risk dimensions, risk clusters, and foreign direct investments in developing countries. International Review of Economics & Finance, 82, 636–649. [Google Scholar]
- Pagano, M., & Volpin, P. (1999). The Political Economy of Corporate Governance (CSEF Working Papers 29, Centre for Studies in Economics and Finance (CSEF)). University of Naples. [Google Scholar]
- Pal, S., & Mahalik, M. K. (2024). Determinants of financial development in top and bottom remittances and FDI inflows recipient developing regions—How does institutional quality matter? Journal of the Knowledge Economy, 1–32. [Google Scholar] [CrossRef]
- Powell, M., & Ansic, D. (1997). Gender differences in risky behaviour in financial decision-making: An experimental analysis. Journal of Economic Psychology, 18(6), 605–628. [Google Scholar] [CrossRef]
- Rajan, R. G., & Zingales, L. (2000). The great reversals: The politics of financial development in the 20th century (Economics department Working paper no 265, Working paper). Organization for Economic Cooperation and Development (OECD). [Google Scholar]
- Raji, A. A. H., Alabdoon, A. H. F., Shaker, A. S., & Almagtome, A. (2024). The effect of national cultural values on the financial inclusion: An international perspective. Futurity Economics & Law, 4(2), 65–82. [Google Scholar]
- Rashid, M., Hj, D. S. N. K. P., & Izadi, S. (2023). National culture and capital structure of the Shariah compliant firms: Evidence from Malaysia, Saudi Arabia and Pakistan. International Review of Economics & Finance, 86, 949–964. [Google Scholar]
- Rousseau, P. L., & Wachtel, P. (2002). Inflation thresholds and the finance–growth nexus. Journal of International Money and Finance, 21(6), 777–793. [Google Scholar] [CrossRef]
- Samargandi, N., Fidrmuc, J., & Ghosh, S. (2015). Is the relationship between financial development and economic growth monotonic? Evidence from a sample of middle-income countries. World Development, 68, 66–81. [Google Scholar] [CrossRef]
- Satt, H., Nechbaoui, S., Hassan, M. K., & Izadi, S. (2019). Ramadan’s impact on the optimism of analysts’ recommendations. International Journal of Islamic and Middle Eastern Finance and Management, 12(5), 727–742. [Google Scholar] [CrossRef]
- Schwartz, S. (1994). Beyond individualism/collectivism: New cultural dimensions of value. In Individualism and collectivism: Theory, method and applications. Sage Publications. [Google Scholar]
- Scott, W. R., & Meyer, J. W. (1983). The organization of societal sectors. In J. W. Meyer, & W. R. Scott (Eds.), Organizational environments: Ritual and rationality (pp. 129–153). Sage Publications. [Google Scholar]
- Sever, C. (2022). Financial crises and institutional quality. International Journal of Finance & Economics, 27(1), 1510–1525. [Google Scholar]
- Shehzad, K., Zaman, U., Ahmad, M., & Kocak, E. (2023). Governance, financial development, and environmental degradation: Evidence from symmetric and asymmetric ARDL. Environment, Development and Sustainability, 25, 14643–14660. [Google Scholar] [CrossRef]
- Shehzad, K., Zaman, U., Ahmad, M., & Liu, X. (2022). Asymmetric impact of information and communication technologies on environmental quality: Analyzing the role of financial development and energy consumption. Environment, Development and Sustainability, 24, 1761–1780. [Google Scholar] [CrossRef]
- Shleifer, A., & Vishny, R. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737–783. [Google Scholar] [CrossRef]
- Song, C. Q., Chang, C. P., & Gong, Q. (2021). Economic growth, corruption, and financial development: Global evidence. Economic Modelling, 94, 822–830. [Google Scholar] [CrossRef]
- Stulz, R. M., & Williamson, R. (2003). Culture, openness, and finance. Journal of financial Economics, 70(3), 313–349. [Google Scholar] [CrossRef]
- Sun, J., Yoo, S., Park, J., & Hayati, B. (2019). Indulgence versus restraint: The moderating role of cultural differences on the relationship between corporate social performance and corporate financial performance. Journal of Global Marketing, 32(2), 83–92. [Google Scholar] [CrossRef]
- Svirydzenka, K. (2016). Introducing a new broad-based index of financial development. International Monetary Fund. [Google Scholar]
- Upreti, S. (2015). Financial development, institutional quality, and economic growth in South Asia. Journal of Economic Studies, 42(1), 91–112. [Google Scholar]
- Vanheusden, F. J., Vadapalli, S. K., Rashid, M., Griffiths, M. D., & Kim, A. (2024). Religiosity, Financial Risk Taking, and Reward Processing: An Experimental Study. Journal of Gambling Studies, 1–22. [Google Scholar] [CrossRef]
- Wachtel, P., Hasan, I., & Zhou, M. ((2006,, October)). Institutional development, financial deepening and economic growth: Evidence from China. BOFIT Discussion Paper No. 12/2006. Available online: https://ssrn.com/abstract=921624 (accessed on 12 November 2022).
- Zaidi, S. A. H., Wei, Z., Gedikli, A., Zafar, M. W., Hou, F., & Iftikhar, Y. (2019). The impact of globalization, natural resources abundance, and human capital on financial development: Evidence from thirty-one OECD countries. Resources Policy, 64, 101476. [Google Scholar] [CrossRef]
- Zheng, L., Hart, T. A., & Zheng, Y. (2012). The relationship between intercourse preference positions and personality traits among gay men in China. Archives of Sexual Behavior, 41, 683–689. [Google Scholar] [CrossRef]
Study | Year | Context |
---|---|---|
Hofstede (1983) | 1983 | Hofstede added on culture as “…that part of our conditioning that we share with other members of our nation, region, or group, but not with members of other nations, regions, or groups”. |
Abrams and Hogg (1988) | 1988 | Social identity theory says that the social group membership such as nationality, ethnicity, religion and occupation are important to generate personal identity, and people tend to conform to the dominant values and behavior of the group. This paper provides another piece of evidence showing the economic outcomes of cultural effects. |
Hofstede (2001) | 2001 | Data on cultural dimensions are obtained from Hofstede (2001). Hofstede has used an employee attitude survey undertaken from1967 to 1973. The subjects of this survey were IBM employees in 72 countries and included about 88,000 respondents. |
de Jong and Semenov (2002) | 2002 | The authors focus on the stock market development of OECD countries. They find that stock markets tend to be more developed in countries where inhabitants have lower levels of uncertainty avoidance and higher levels of masculinity. |
Stulz and Williamson (2003) | 2003 | The authors indicate that culture can exert its influence by affecting the predominant values, institutions, and resource allocation in a country. |
Keillor et al. (2009) | 2009 | The authors conclude that national culture is a key country-specific characteristic that has been considered as a possible determinant of FDI inflows. |
Lucey and Zhang (2010) | 2010 | The authors find that country-pairs exhibit higher linkages if they have smaller cultural distance. The result remains significant to alternative measures of linkage. Finally, the cultural effect seems to be more pronounced for active trading country-pairs than thin-trading country-pairs. |
Aggarwal et al. (2012) | 2012 | The authors deliver a basic idea that geographic and cultural distance acts as a proxy for transaction cost, information asymmetry and unfamiliarity effect. These effects will affect cross-border capital flows and price co-movement. |
Falk et al. (2018) | 2018 | The authors investigate the global variation in economic preferences. They find that national culture influences an individual’s behaviors relating to saving decisions, entrepreneurial activities, time preference, etc. |
Ang (2019) | 2019 | The author reports that individualism plays a vital role in explaining the wide gap in the levels of financial development experienced by many countries around the world. |
Fernandez-Perez et al. (2021) | 2021 | The authors perform an event study to explore the influence of national culture on stock market responses to COVID-19 pandemic. They find that countries with low individualism and high uncertainty avoidance have higher volatility and larger market drops, during the first few weeks of the COVID-19 infection. |
Khan et al. (2022) | 2022 | The authors investigate the impact of Hofstede’s (1980) national culture dimensions on financial sector development (FSD) in fifty-five emerging and developing economies during the period 1984 to 2018 and conclude that national culture significantly determines cross-country differences in financial sector development. |
Bialowolski et al. (2023) | 2023 | The study explores the relationship between national culture and financial capability at the country level. The results show that individualism, long-term orientation, and indulgence are positively correlated with financial capability, while uncertainty avoidance is negatively correlated. These relationships are non-linear and vary depending on the level of each cultural dimension. |
Raji et al. (2024) | 2024 | The study examines how national cultural values influence financial inclusion levels in different countries. Using data from 40 countries between 2012 and 2021 the results show that cultural dimensions significantly impact financial inclusion. Countries with high uncertainty avoidance and power distance tend to have lower financial inclusion, while those with high individualism and masculinity tend to have higher financial inclusion. |
Khan et al. (2024) | 2024 | The study examines the relationship between financial institution quality, innovation, and financial development in 22 emerging markets. It finds that the interaction of innovation and technology with well-functioning institutions can accelerate financial development. |
MSCI Market Classification | Countries | Freq. | % |
---|---|---|---|
Developed (19) | Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, Netherlands, Portugal, Spain, Sweden, Switzerland, UK, USA | 323 | 57.58 |
Emerging (11) | Brazil, Chile, China, Czech Republic, Greece, Hungary, South Korea, Poland, Russia, South Africa, Turkey | 187 | 36.67 |
Frontier (3) | Estonia, Iceland, Slovakia | 51 | 9.09 |
Variables | Definition | Source |
---|---|---|
FINDEV | IMF financial development index developed by Svirydzenka (2016) | IMF |
KAOPEN | Financial openness: The Chinn–Ito index (KAOPEN) | Chinn and Ito (2006, 2008) |
INF | Log of Consumer Price Index—Inflation Rate | The World Bank |
GDPGR | Economic Growth—GDP Growth Rate | The World Bank |
EXCH * | Real Effective Exchange Rate, Consumer Price Index https://www.investopedia.com/terms/r/reer.asp (accessed on 26 August 2024) | International Financial Statistics (IFS) |
WGI | Institutional quality Index which is a weighted average of Control of Corruption, Political Stability and Absence of Violence/Terrorism, Government Effectiveness, Regulatory Quality, Rule of Law, and Voice and Accountability. | The World Bank and www.govindicators.org |
Market | Dummy Variable: 0 Developed; 1 Developing | MSCI Market Classification Framework |
PDI | Power Distance Index | https://www.hofstede-insights.com |
IDV | Individualism Versus Collectivism | https://www.hofstede-insights.com |
MAS | Masculinity Versus Femininity | https://www.hofstede-insights.com |
UAI | Uncertainty Avoidance Index | https://www.hofstede-insights.com |
LTO | Long-Term Orientation Versus Short-Term Normative Orientation | https://www.hofstede-insights.com |
IVR | Indulgence Versus Restraint | https://www.hofstede-insights.com |
NC ** | A composite score of the six Hofstede cultural dimensions | Averaging pdi, idv, mas, uai, ltowvs and ivr |
Variables | Mean | Maximum | Minimum | Std. Dev. | Obs. |
---|---|---|---|---|---|
FINDEV | 0.65 | 0.99 | 0.19 | 0.18 | 693 |
KAOPEN | 1.41 | 2.37 | −1.90 | 1.34 | 693 |
GDPGR | 2.46 | 25.55 | −14.72 | 3.53 | 693 |
INF | 2.91 | 54.2 | −2.98 | 3.91 | 693 |
EXCH | 96.61 | 156.97 | 44.40 | 13.43 | 693 |
WGI | 62.67 | 117.62 | 15.02 | 18.95 | 693 |
PDI | 48 | 93 | 11 | 18 | 693 |
IDV | 58 | 91 | 18 | 21 | 693 |
MAS | 52 | 95 | 5 | 21 | 693 |
UAI | 68 | 100 | 23 | 23 | 693 |
LTO | 55 | 100 | 21 | 22 | 693 |
IVR | 49 | 78 | 14 | 14 | 693 |
(1) | (2) | (3) | (4) | (5) | (6) | (7) | |
---|---|---|---|---|---|---|---|
Variables | OLS | OLS | OLS | OLS | OLS | OLS | OLS |
INF | −0.037 *** | −0.037 *** | −0.037 *** | −0.038 *** | −0.035 *** | −0.038 *** | −0.037 *** |
(0.008) | (0.008) | (0.008) | (0.008) | (0.007) | (0.008) | (0.007) | |
GDPGR | −0.004 ** | −0.004 ** | −0.004 * | −0.004 * | −0.006 *** | −0.005 ** | −0.003 |
(0.0021) | (0.0021) | (0.0021) | (0.0021) | (0.0021) | (0.0021) | (0.0020) | |
EXCH | 0.003 *** | 0.003 *** | 0.003 *** | 0.003 *** | 0.003 *** | 0.003 *** | 0.002 *** |
(0.0004) | (0.0005) | (0.0005) | (0.0005) | (0.0005) | (0.0005) | (0.0004) | |
WGI | 0.001 *** | 0.002 *** | 0.001 *** | 0.002 *** | 0.001 *** | 0.002 *** | −0.001 |
(0.0003) | (0.0004) | (0.0004) | (0.0004) | (0.0004) | (0.0004) | (0.0004) | |
PDI | −0.004 | ||||||
(0.0155) | |||||||
IDV | 0.046 *** | ||||||
(0.0171) | |||||||
MAS | −0.039 *** | ||||||
(0.0116) | |||||||
UAI | −0.083 *** | ||||||
(0.0177) | |||||||
LTO | −0.019 | ||||||
(0.0162) | |||||||
IVR | 0.172 *** | ||||||
(0.0155) | |||||||
C | 0.260 *** | 0.280 *** | 0.101 | 0.399 *** | −0.662 *** | 0.348 *** | −0.177 |
(0.054) | (0.091) | (0.079) | (0.675) | (0.101) | (0.093) | (0.063) | |
Obs. | 630 | 630 | 630 | 630 | 630 | 630 | 630 |
R2 | 0.18 | 0.18 | 0.19 | 0.19 | 0.21 | 0.18 | 0.31 |
Variables | LPDI | LIDV | LMAS | LUAI | LLTO | LIVR |
---|---|---|---|---|---|---|
FINDEV.L1 | 0.841 *** | 0.808 *** | 0.757 *** | 0.737 *** | 0.828 *** | 0.747 *** |
(0.000) | (0.209) | (0.029) | (0.028) | (0.026) | (0.027) | |
INF | −0.0001 | −0.0001 | 0.0001 | 0.0001 | −0.0004 | 0.0001 |
(0.002) | (0.002) | (0.002) | (0.002) | (0.002) | (0.002) | |
GDPGR | −0.001 | −0.001 | −0.001 | −0.001 * | −0.0006 | −0.001 |
(0.001) | (0.001) | (0.0004) | (0.0004) | (0.0004) | (0.0004) | |
EXCH | −0.000 | −0.000 | −1.0000 | −0.0001 | −0.0000 | −0.0001 |
(0.001) | (0.001) | (0.0002) | (0.0002) | (0.0002) | (0.0002) | |
WGI | −0.001 *** | −0.001 *** | −0.001 *** | −0.001 *** | −0.001 *** | −0.001 *** |
(0.001) | (0.001) | (0.001) | (0.001) | (0.001) | (0.001) | |
LPDI | −0.045 *** | |||||
(0.013) | ||||||
LIDV | 0.062 *** | |||||
(0.012) | ||||||
LMAS | −0.063 *** | |||||
(0.013) | ||||||
LUAI | −0.101 *** | |||||
(0.014) | ||||||
LLTO | −0.030 | |||||
(0.019) | ||||||
LIVR | 0.101 *** | |||||
(0.013) | ||||||
C | 0.319 *** | −0.067 | 0.439 *** | 0.655 *** | 0.264 *** | −0.155 *** |
(0.570) | (0.050) | (0.065) | (0.075) | (0.081) | (0.047) | |
Obs. | 598 | 598 | 598 | 598 | 598 | 598 |
Wald Chi2(4) | 1187 | 1240 | 1307 | 1362 | 1192 | 1352 |
Prob > chi2 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 |
Variables | Model 1 | Model 2 | Model 3 | Model 4 | Model 5 |
---|---|---|---|---|---|
INF | −0.039 *** (0.008) | −0.038 *** (0.008) | −0.0398 *** (0.008) | 0.0384 *** (0.008) | |
GDPGR | −0.004 ** (0.002) | −0.004 * (0.002) | −0.004 ** (0.002) | −0.0041 * (0.002) | |
EXCH | 0.003 *** (0.001) | 0.0032 *** (0.001) | 0.0030 *** (0.001) | 0.0031 *** (0.001) | |
WGI | 0.002 *** (0.001) | 0.0020 *** (0.001) | 0.002 *** (0.001) | 0.0021 *** (0.001) | |
NC | 0.129 ** (0.054) | 0.1269 ** (0.054) | 0.130 ** (0.053) | 0.1243 ** (0.054) | |
iINF | −0.023 (0.020) | ||||
i2INF | −0.039 *** (0.008) | ||||
iGDPGR | 0.0033 (0.006) | ||||
i2GDOGR | −0.0047 ** (0.002) | ||||
iEXCH | 0.004 *** (0.001) | ||||
i2EXCH | 0.003 *** (0.001) | ||||
iWGI | 0.0015 *** (0.001) | ||||
i2WGI | 0.0019 *** (0.001) | ||||
iNC | 0.1433 *** (0.054) | ||||
i2NC | 0.129 ** (0.053) | ||||
C | −0.261 (0.223) | −0.257 (0.223) | −0.267 (0.222) | −0.230 (0.221) | −0.269 (0.222) |
R2 | 0.19 | 0.19 | 0.19 | 0.19 | 0.19 |
F-value | 23.53 *** | 23.73 *** | 24.44 *** | 23.53 *** | 24.45 *** |
(1) | (2) | (3) | (4) | (5) | (6) | (7) | |
---|---|---|---|---|---|---|---|
Variables | OLS | OLS | OLS | OLS | OLS | OLS | OLS |
INF | −0.359 *** | −0.327 *** | −0.354 *** | −0.363 *** | −0.350 *** | −0.359 *** | −0.358 *** |
(0.053) | (0.050) | (0.050) | (0.052) | (0.053) | (0.053) | (0.052) | |
GDPGR | −0.065 *** | −0.062 *** | −0.052 *** | −0.063 *** | −0.069 *** | −0.065 *** | −0.062 *** |
(0.015) | (0.014) | (0.015) | (0.046) | (0.015) | (0.015) | (0.015) | |
EXCH | −0.009 *** | −0.013 *** | −0.010 *** | −0.008 *** | −0.010 *** | −0.009 *** | −0.011 *** |
(0.003) | (0.003) | (0.003) | (0.003) | (0.003) | (0.003) | (0.004) | |
WGI | 0.021 *** | 0.013 *** | 0.013 *** | 0.020 *** | 0.020 *** | 0.021 *** | 0.017 *** |
(0.003) | (0.003) | (0.003) | (0.003) | (0.003) | (0.003) | (0.0030) | |
LPDI | −0.821 *** | ||||||
(0.101) | |||||||
LIDV | 0.901 *** | ||||||
(0.113) | |||||||
LMAS | −0.243 *** | ||||||
(0.080) | |||||||
LUAI | −0.245 ** | ||||||
(0.123) | |||||||
LLTO | −0.012 | ||||||
(0.112) | |||||||
LIVR | 0.321 *** | ||||||
(0.116) | |||||||
C | 1.121 *** | 3.316 *** | −1.67 *** | 2.283 *** | 2.609 *** | 1.477 *** | 0.605 |
(0.370) | (0.596) | (0.523) | (0.465) | (0.703) | (0.639) | (0.472) | |
Obs. | 630 | 630 | 630 | 630 | 630 | 630 | 630 |
R2 | 0.25 | 0.33 | 0.32 | 0.21 | 0.26 | 0.25 | 0.26 |
Disclaimer/Publisher’s Note: The statements, opinions and data contained in all publications are solely those of the individual author(s) and contributor(s) and not of MDPI and/or the editor(s). MDPI and/or the editor(s) disclaim responsibility for any injury to people or property resulting from any ideas, methods, instructions or products referred to in the content. |
© 2025 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/).
Share and Cite
Izadi, S.; Weinberg, F.J.; Rashid, M. National Culture, Institutional Quality, and Financial Development: International Evidence Before and After Financial Crisis. Int. J. Financial Stud. 2025, 13, 74. https://doi.org/10.3390/ijfs13020074
Izadi S, Weinberg FJ, Rashid M. National Culture, Institutional Quality, and Financial Development: International Evidence Before and After Financial Crisis. International Journal of Financial Studies. 2025; 13(2):74. https://doi.org/10.3390/ijfs13020074
Chicago/Turabian StyleIzadi, Selma, Frankie J. Weinberg, and Mamunur Rashid. 2025. "National Culture, Institutional Quality, and Financial Development: International Evidence Before and After Financial Crisis" International Journal of Financial Studies 13, no. 2: 74. https://doi.org/10.3390/ijfs13020074
APA StyleIzadi, S., Weinberg, F. J., & Rashid, M. (2025). National Culture, Institutional Quality, and Financial Development: International Evidence Before and After Financial Crisis. International Journal of Financial Studies, 13(2), 74. https://doi.org/10.3390/ijfs13020074