Money is power: Can a country’s culture increase the risk of payment defaults?

In this paper, we used Euler Hermes unique dataset of international trade flows and payment defaults to explore the relationship between national culture and payment defaults between companies. We found that importers located in countries where society accepts and expects that power is distributed unequally tend to have a higher default ratio. The role of national culture is robust to the use of alternative indicators, such as the World Bank’s Resolving Insolvency indicator, and to the inclusion of the geographic and cultural distances between the importer and the exporter. Those findings are consistent with previous results based on mortgage default and tax evasion, and confirm the role of national culture in cross-country differences in behavior concerning non-payments.

In other words, the strength of societal and social hierarchy matters for insured trade credit defaults. Using power as a proxy for B2B non-payments, the 10 countries on your accounts receivables watch list should be: Malaysia, Slovakia, Guatemala, Panama, the Philippines, Russia, Romania, Serbia, Mexico and China. Conversely, the following 10 countries exhibit equally distributed power (and reduced default risk): Austria, Israel, Denmark, New Zealand, Ireland, Norway, Sweden, Finland, Switzerland, and Germany. Understanding the power structure in your clients’ country can become a useful compass during the Covid-19 crisis.


Ludovic Subran
Allianz SE