Does Corporate Culture Affect Bank Risk-Taking? Evidence from Loan-Level Data

British Journal of Management, Vol. 30, Issue 1, 2019

51 Pages Posted: 6 Jun 2016 Last revised: 1 Jul 2021

See all articles by Duc Duy Nguyen

Duc Duy Nguyen

Durham University

Linh Nguyen

University of St. Andrews

Vathunyoo Sila

University of Edinburgh

Date Written: February 14, 2018

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.

Keywords: Corporate culture; Bank risk-taking; Bank loans; Financial crisis; Financial stability

JEL Classification: G21, G34, M14

Suggested Citation

Nguyen, Duc Duy and Nguyen, Linh and Sila, Vathunyoo, Does Corporate Culture Affect Bank Risk-Taking? Evidence from Loan-Level Data (February 14, 2018). British Journal of Management, Vol. 30, Issue 1, 2019, Available at SSRN: https://ssrn.com/abstract=2789000 or http://dx.doi.org/10.2139/ssrn.2789000

Duc Duy Nguyen (Contact Author)

Durham University ( email )

Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

HOME PAGE: http://sites.google.com/site/louisnguyen6589/home

Linh Nguyen

University of St. Andrews ( email )

The Gateway
North Haugh
St Andrews, Fife KY16 9RJ
United Kingdom

Vathunyoo Sila

University of Edinburgh ( email )

29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom
+447428747109 (Phone)

HOME PAGE: http://https://www.business-school.ed.ac.uk/staff/ben-sila

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
453
Abstract Views
3,133
Rank
120,676
PlumX Metrics