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Does corporate culture affect bank risk-taking? Evidence from loan-level data

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accepted_SSRN_version.pdf (1.204Mb)
Date
30/01/2019
Author
Nguyen, Duc Duy
Nguyen, Linh
Sila, Vathunyoo
Keywords
Corporate culture
Bank risk-taking
Bank loans
Financial crisis
Financial stability
HG Finance
3rd-DAS
BDC
R2C
Metadata
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Abstract
Using comprehensive corporate and retail loan data, we show that the corporate culture of banks explains their risk-taking behaviour. Banks whose corporate culture leans towards aggressive competition are associated with riskier lending practices: higher approval rate, lower borrower quality, and fewer covenant requirements. Consequently, these banks incur larger loan losses and make greater contributions to systemic risk. The opposite behaviour is observed among banks whose culture emphasises control and safety. Our findings cannot be explained by heterogeneity in a bank’s business model, CEO compensation incentives, and CEO characteristics. We use an exogenous shock to the US banking system during the 1998 Russian default crisis to support a causal inference.
Citation
Nguyen , D D , Nguyen , L & Sila , V 2019 , ' Does corporate culture affect bank risk-taking? Evidence from loan-level data ' , British Journal of Management , vol. 30 , no. 1 , pp. 106-133 . https://doi.org/10.1111/1467-8551.12300
Publication
British Journal of Management
Status
Peer reviewed
DOI
https://doi.org/10.1111/1467-8551.12300
ISSN
1045-3172
Type
Journal article
Rights
Copyright © 2019 British Academy of Management. This work is made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1111/1467-8551.12300
Collections
  • University of St Andrews Research
URI
http://hdl.handle.net/10023/21346

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