ABSTRACT
This chapter addresses the relation among culture, financial systems, and investors' behaviour. Financial systems are often classified as market- or bank-based systems. There are three main approaches for explaining cross-country differences in financial systems: the legal approach, the political approach, and the cultural view. The political approach claims that political structures explain cross-country differences in stock market developments. The legal approach and cultural approaches that use dominant language and religion as proxies for culture enable us to distinguish varieties of capitalism: a country has a common law or a civil law system or is predominantly Protestant. The chapter illustrates the advantages of a cultural approach over the Varieties of Capitalism (VoC) literature. An exception is de Jong and Semenov in that it presents a quite extensive theoretical framework for the relation between the importance of financial markets, institutions, and culture. In this respect, culture digs deeper than the institutional approach in explaining comparative economic phenomena.
