Paying and repaying behavior are financial functions of great interest to private financial actors and public regulators, as also to academic researchers. The purpose of the paper is to empirically analyse paying and repaying behavior by combining theoretical insights from an emerging field in economics known as “culture and finance” with ideas from the economic analysis of social capital and trust in the context of different regulatory systems.
The present paper investigates with the help of panel data whether a culture of social trust and the scope of morality have an influence on paying and repaying behavior in different European and OECD countries.
The analysis shows that culture has an effect on firms' credit losses from the customers' payment defaults, on the overall riskiness of paying behavior and on the level of non‐performing bank loans. Also the complexity of law‐based regulation has an influence on paying and repaying behavior. The analysis also shows that high trust and morality are associated with less complex regulation and vice versa.
The results help private financial actors, regulators and public policy makers to design more appropriate behavioral environments for paying and repaying.
The paper provides the first analysis of an important issue and it serves both practical interest and further research on the topic.
