Social Capital And The Viability Of Stakeholder-Oriented Firms: Evidence From Norwegian Savings Banks

Date Added: Jul 2009
Format: PDF

Stakeholder oriented governance systems are often thought to hamper efficiency. The authors show that social capital improves the viability of stakeholder-oriented firms in competitive markets. Studying exits from the population of Norwegian savings banks after deregulations, they find that banks located in communities with high social capital have a higher probability of survival. They propose that social capital facilitates collective decision-making, ensuring that banks internalize the preferences of the community in return for continued community patronage. Consistently, they find that in high social capital areas banks operate with lower interest rate margins, lower returns on assets, and lower loan losses.