Does cultural identity facilitate cooperation?—Impact of business culture on boards and bank cooperation in Republican China

Abstract

This paper studies the impact of cultural integration on business cooperation in the Republican Era. We collect the composition of bank boards and directors' biographical details of 28 principal banks in China, compiling a panel dataset from 1921 to 1936. The data allows us to classify directors' merchant groups, a typical cultural reflection, thereby calculating the cultural difference at the bank-pair level. Using the boards' cultural traits, we find cultural difference among bank boards is negatively related to their director-sharing decisions, an indicator of inter-bank cooperation. Also, cultural identity on boards facilitates banks to participate in loan syndicates with the yield and risk shared. Further composition tests show that cultural attitude towards clan orientation, trust and open spirit embedded in the business culture is the root of inter-banking cooperation. The finding reveals the importance of informal institutions in financial development and contributes to the debate on cultural and institutional bifurcation between China and Europe.