Goal
In traditional finance theory, models assume a rational man that is used to make decisions that always maximize his benefit. In this model, it does not matter if the rational man is German or Chinese because the decision making does not depend on a nationality or a culture. In this paper, we designed an experiment in which we polled individuals, from two different cultural schemes, about the same financial phenomenon.
First, we take into account that the observed phenomenon is the same. If culture does not affect the making of financial decisions, the survey results from both groups will be quite similar. On the other hand, if culture is a variable to consider in the different models of the financial market behaviors, the results of the survey of both groups will be significantly different. Summarizing, in this paper we try to show evidences, so that we can prove that the variable culture is important and it should be considered in the different kind of financial models.
Introduction
After many years of research, the efficient market and the rational man hypothesis have failed. Other models have proved that there is something else required on the equation.
First, research was started to work with the individual psychological bias, in other words, Behavioral Finance. Recently, it has surged a series of papers in which the cultural and financial variables have been related. The application of cultural concepts in financial areas has result attractive and it has won multiple adepts. Stultz & Williamson have provided a detailed conceptual discussion about the culture and its importance in finance. They proposed that the culture, measured through religion and language, affects to variables such as the rights of investors.[①]
Even, they show evidence that religion is a better predictor of rights of investors than the level of country’s international trade liberalization. Nonetheless, they find that the effect of culture decreases when the level of international trade liberalization increases. Grinblatt & Keloharju proposes that investors tend to invest more in enterprises that are physically closer to their residence, communicating to people in the same native language, and with a CEO who has the same nationality or culture of the investor.[②]
Guiso et al provides an extensive discussion about how culture affects the investment decisions in financial markets.[③] At the moment of deciding whether to invest in shares, the investor is afraid of being cheated and this perception of risk is influenced not only by the individual characteristics of the company where he is to invest, or the capital market where he is to participate; but also by individual and cultural characteristics of investors. Less reliable investors tend to invest less in the stock market. According to Guiso et al, this explains why many of the United States’ richest people do not invest in the Stock Exchange. It also explains differences of participation in the Stock Exchange among countries.[④]
Markus & Kitayama proposed that individuals from individualistic cultures tend to see themselves as “autonomous and independent persons”.[⑤] In collectivist cultures, the individuals perceive themselves as “connected and less differentiated from others”. In individualistic cultures, like the United States, individuals give more value to their forecasts in function of their personal skills and they are used to see themselves more like winners; therefore, they overestimate their own abilities, such that they feel that they are above average. This situation does not happen in collectivist cultures as Japan.  
Traditional explanations for the differences in financial systems fall primarily on the legal framework, and on the reduction of risk. These two concepts are not mutually exclusive. The individual perception of uncertainty is strongly influenced by national culture. Hofstede documents that a variety of perceptions towards risk in a wide sample of different countries.[⑥] Kwok & Tadesse show that; the configuration of the financial system of a country is related to cultural dimensions; such as, to risk aversion.[⑦] Countries with a strong risk aversion, as a cultural dimension, are associated with financial systems that are more focused on banking than focused in the Stock Exchange. These papers also provide a link between literature on culture and financial literacy.
Another study that examines the cultural and financial variables is the one conducted by Chui, Titman and Wei. [⑧]They show that cultural differences between nations affect yields in capital markets. Specifically they find a statistically significant positive relation between individualism with the purchase and sales volume in the stock market and the price volatility as well as the size of the prize "Momentum". Momentum Award is the utility that has a zero cost portfolio. It invests in last year's profitable stocks and taking a short position in the losers.[⑨]
Breuer & Quinten make a call to create a field of research named "Cultural finance”.[⑩] It is proved with methods taken from Game Theory and Institutional Economy the importance of cultural values in making financial decisions.
Methodology
Nowadays, Shanghai city presents a unique position to make a comparative research study of cultural perception. On the one hand, the Chinese Financial System is in a time of great change. In 2001, China signed its adherence’s commitment in order to join the World Trade Organization (WTO), which meant that it would commit to a profound reform of their financial system. They want them to go from a state system to an open market allowing the involvement of international banking in China, and in turn, internationalizing the Chinese banks.
When a system is in changes, the users become more sensible and critical in order to evaluate whether these changes are being taken to improve or they are a throwback. On the other hand, the Shanghai city is a very cosmopolitan city, with a big foreigner’s community which is mainly Americans, Europeans, especially Germans, and other from the rest of the world.
Taking advantage of these two situations: a financial system in flux and a multicultural city, we did a survey to assess whether there are differences in perception due to cultures. This means that we do the same survey about the financial system to Chinese citizens and foreigners (Anglo-Saxons); both groups should be residents of Shanghai. If there are significant differences, in the responses of the two groups, it could be attributed to the cultural differences. It will be taken care that the variables, of both groups, are similar except for nationality.
In this survey, we will try to see if variables as confidence, risk aversion, individualism, proximity, or cultural distance, affect or not the Chinese financial system’s perception.
The Experiment
We gathered two groups, both with the following characteristics: individuals in full work cycle, between 25 and 50 years old, who worked in the city of Shanghai for at least the last two years. We want them between 25 and 50 years old to make sure that they are in contact with the financial system (through a checkbook, savings account, internet banking, among others). It was a requirement for them to have a university degree (except for an entrepreneur interviewed who just had a high school degree), to speak English, and to work professionally within middle management, direction or if they used to be owners of their own company. Companies could be small (restaurant, office consultant, designer, among others) but were avoided businesses like informal trade or unregistered businesses in order to avoid skewing the results.
The first group consists of Chinese citizens no matter their native city. The second group only consists of Anglo-Saxon citizens mainly Germans, British, and Americans.
Results
Main characteristics of the polled groups
Table 1 shows the main control characteristics of both groups. We can see that age, gender, and professional activity of both groups are very similar. One noticeable difference is in the level of income; even though the level of jobs is generally similar between both groups, the expatriate from a foreign company enjoys a higher level of salary and benefits than the residents of Shanghai; as seen in the sample.
Furthermore, it is seen a greater number of executive employees with graduate education in the foreigners' sample than in the Chinese's sample. However, for practical purposes of this study, we consider both groups sufficiently homogeneous so that the results will not be distorted by some of these differences. The important thing was to count with two groups; in spite of their small size, they were very representative of the economic agent that participates in making financial decisions of financial companies. In other words, there are prepared individuals, owners, or those that belong to mid or high direction of companies which had good economic and income level.
Survey’s answers
In Appendix 1, it is found the entire survey with the sum of answers per choice. The results are the following: First, we asked whether for their bank services they used to use mainly Chinese banks, foreign banks in China, foreign banks overseas, or another option. The most practical option, for any resident in Shanghai, are the two first options. Actually, Chinese’ banks show bigger branches than foreign banks that are starting to get in the Chinese market. The 76% of Chinese people in the group prefer to use Chinese banks against the 32% of Anglo-Saxons. This is consistent with the cultural closeness effect documented by Grinblatt & Keloharju.[11] They say that we prefer companies of our own culture that are closer to us.
The second question is to know which of the bank services are used the most. For Anglo-Saxons in the group predominates credit card: 45%, the checkbook: 42% and the internet banking: 22%. For each group of Chinese, the service that was used the most is the savings account: 25% and credit card: just 23%. This shows evidence of a cultural difference that is significant: Chinese people prefer to save money than to use credit cards in comparison with the Anglo-Saxon.
In order to invest their money surplus, Chinese prefer Chinese funds (inversion societies, or mutual funds): 52% and Chinese banks: 38%. However, the foreigners prefer funds located in foreign: 74%. Again, this is consistent with the effect reported by Grinblatt & Keloharju about cultural closeness.[12]
Regarding the relative savings (based on monthly income) 62% of the Chinese claim to have savings of over four months, versus 24% of Anglo-Saxons.
Regarding general perception of Chinese bank, it’s had a better perception of Chinese people than of Anglo-Saxons (cultural closeness effect). On whether it is reliable, 64% of Chinese say yes, compared to 42% of foreigners. Whether it is transparent, 52% of Chinese think so, against 30% of foreigners. Whether it is manipulated by the government 70% of Chinese think that is not, against 68% of foreigners. Whether it is corrupt: 70% of Chinese think that it is not, against 52% of foreigners.
However, although Chinese group shows to have more confidence in his bank, when we ask them whether they consider it efficient in comparison with the international banking just 24% says that it actually does, in comparison with 46% of foreigners. This may be because Chinese having no experience with international banks and due to the massive publicity that carry out international banks undervalue its attributes with respect of the foreigner that has had experience with both banking. Additionally, this highlights the cultural closeness effect even though they recognize that their products are not better than international ones they prefer them because they are from their culture.
In question 6, we did the same questions as in last section, but now it is about the Shanghai stock exchange and the answers are very similar. The Chinese group is more confident than the foreigner, but the foreigner relatively sees it more efficiently than the Chinese. It should be noted that both groups increased much the answers: I do not know, because everyone is customer from banking, but not in the stock market.
About the loans profile that they use, according to question 7, we found that 80% of the sample of Chinese people already has some kind of mortgage loan against 38% of foreigners. The reason of this difference is mainly because Chinese people want to stay in the city and invest in a dwelling and also it is easier for them to acquire the loan. As long as foreigners usually are passing temporarily, and also it is harder for them to have a loan.
The same situation is found in car’s case. For foreigners, it is difficult to drive in Shanghai (if they do not speak Chinese and they cannot read the road signs, then it is very hard to drive in China), hence they prefer public transportation, or they prefer to use a car with company’s chauffeur. Regarding the use of the credit card is a little higher in whites: 90%, against 82% in China. The point that attracts the most attention is that 70% of Chinese say to have a family loan against only 14% of foreigners. This is an effect very significant in a collectivist society where the social network aims itself socially and financially.
In Question 8 we questioned whether they perceive an improvement in Chinese banking services in the last 5 years. The 76% of Chinese say that they have improved and 24% that have improved drastically. 72% of foreigners say that they have improved and just an 8% perceive that they have improved drastically. A possible explanation is that in general a foreigner has less time to reside in China and their comparative horizon is less than Chinese who did see in the beginning of the decade a bank without computers when everything was based in countless copies and stamps which does more drastic its comparison with foreigners’ that arrived in a China with a automatized banking.
Regarding the improvement of Shanghai’s stock exchange in the last 5 years, foreigners are still more skeptical than Chinese. The 76% of Chinese say that Shanghai stock exchange has improved against only 18% of foreigners. This could be because this group is limited in the series B where there’s less options and liquidity than in series A of exclusive Chinese access.
In question 10, we asked them about insurance they have. We found a big difference, the group of 50 Anglo-Saxons in overall they declared to have 103 insurances with an average of 2 per person against 47 of Chinese group that is less than a half. If we link this with question 7 where we see that Chinese count with more familiar credits, we will support that Chinese culture is collectivist and it generates an aim familiar network, and lend support in misfortune, against Anglo-Saxons. Furthermore, if the Anglo-Saxon is an expatriate and he is away from his family, other than its natural individualism, the sensation of isolation increases and from there the necessity of consuming more insurances than Chinese because Chinese feel protected by their social network.
Finally, we ask exclusively to foreigners how do they feel about banking and stock exchange in comparison with their country. Regarding banking, the 60% considered it deficient or very deficient. Independently of which is the reality, it persists the effect of: mine is better.  
Conclusions
We analyzed the survey results about Chinese financial system out of two groups living in the financial transformation phenomenon from the same place, Shanghai. They had similar characteristics like age, gender, professional position, but with different cultures that lead us to conclude that culture is a differentiator ingredient. The evidence provided suggests that cultural characteristics influence the answers and the way of acting from individuals, finding substantial differences between both groups. Hence, this research provides evidence to show that culture affects man in making decisions related to money, their personal finance and the financial system and it disagrees with the assumption in traditional models where men are purely rational and the moves simply by the maximization of economic benefits.
As future research we could repeat a similar experiment but only with employees of the financial system, as money managers, so that, we can take advantage of the increase in foreign companies and foreigners in China's financial system, specifically in the city of Shanghai.

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