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

Duc Duy Nguyen, Linh Hoai Nguyen, Vathunyoo Sila

Research output: Contribution to journalArticlepeer-review

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.
Original languageEnglish
Pages (from-to)106-133
JournalBritish Journal of Management
Volume30
Issue number1
Early online date30 Jan 2019
DOIs
Publication statusPublished - 30 Jan 2019

Keywords

  • corporate culture
  • bank risk taking
  • bank loans
  • financial crisis
  • financial stability

Fingerprint

Dive into the research topics of 'Does corporate culture affect bank risk-taking? Evidence from loan-level data'. Together they form a unique fingerprint.

Cite this