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Organizational culture, competition and bank loan loss provisioning

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Wilson_2022_EJoF_Organizational_culture_competition_bank_loan_loss_CC.pdf (2.475Mb)
Date
04/04/2022
Author
Luu, Hiep Ngoc
Wilson, John
Nguyen, Linh
Keywords
Bank deregulation
Competition
Discretionary loan loss provisions
Organizational culture
Textual analysis
HG Finance
3rd-DAS
MCC
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Abstract
This paper investigates how banks with different organizational cultures (defined as either control-dominant, collaborate-dominant, compete-dominant, create-dominant) manage their loan loss provisions (LLPs) in response to intensified industry competition. For identification, we utilize the change in state-level competition that followed the passage of the US Interstate Banking and Branching Efficiency Act (IBBEA) of 1994 as a quasi-natural experiment. We find that banks with a collaborate-dominant organizational culture are less likely to exercise discretion over LLPs. In contrast, banks with compete- and create-dominant organizational cultures are more likely to utilize discretionary LLPs when competition increases. Moreover, banks use discretionary LLPs to smooth income and signal private information to outsiders. Banks with collaborate-dominant organizational cultures exhibit less income smoothing. Counterparts with a create-dominant organizational culture use discretionary LLPs to signal information to outside stakeholders. Finally, banks with a create-dominant organizational culture are more likely to be subject to formal regulatory enforcement actions.
Citation
Luu , H N , Wilson , J & Nguyen , L 2022 , ' Organizational culture, competition and bank loan loss provisioning ' , European Journal of Finance , vol. Latest Articles . https://doi.org/10.1080/1351847X.2022.2053732
Publication
European Journal of Finance
Status
Peer reviewed
DOI
https://doi.org/10.1080/1351847X.2022.2053732
ISSN
1351-847X
Type
Journal article
Rights
Copyright © 2022 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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  • University of St Andrews Research
URI
http://hdl.handle.net/10023/25141

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