Speaker: Dongmin Kong, Huazhong University of Science and Technology

Title: Culture and Bank Expansion

Time: 13:30-15:00 October 16, 2024

Abstract:

This paper investigates the effect of cultural differences on bank branch expansion. China has a unified official language but still hosts 17 dialect areas representing different cultures, which provides us with a unique opportunity to identify the effect of cultural differences by comparing bank expansion across dialect boundaries. Our spatial regression discontinuity design shows that cultural differences act as a hindrance to bank branching, and that the effect persists for more than 30 years in a bank's life cycle. A plausible mechanism is broken trust across the dialect group boundaries. The branching gap caused by cultural differences also increases firms' financing costs and reduces firms' leverage and investment. Our findings highlight the important role of cultural proximity in shaping a bank's branch network and corporate financing.