Bank consumer relations and social capital

Abstract

Examining the relationship between social capital and bank/consumer relations, we find banks in high social capital areas pay more interest and charge fewer fees on deposits, charge lower rates on loans, are less risky, more profitable, hold less capital, and display lower likelihoods of default and failure. Results reflect that commercial banks operating in high social capital areas do not solely maximize profits but seem to pursue objectives promoting stakeholder interests. To clarify this, we examine and find that banks operating in high social capital areas have higher community CSR scores. Banks operating with a CSR conscious perspective are more inclined to consider community interests than purely profit-maximizing banks. Thus, social capital matters because it motivates banks to adopt objectives other than pure profit maximization.