Bank Safety-oriented Culture and Lending Decisions

57 Pages Posted: 8 Jun 2021 Last revised: 14 Jul 2022

See all articles by Ning Tang

Ning Tang

National Yang Ming Chiao Tung University

Amina Kamar

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE)

Chih-Yung Lin

National Yang Ming Chiao Tung University

Chien-Lin Lu

National Ilan University

Date Written: June 5, 2021

Abstract

In this study, we investigate the effects of bank safety-oriented culture on loan contracts. We propose a new measure that derives a bank’s safety-oriented culture from its business model. We provide several validation tests to confirm that our measure can represent the safety-oriented culture of banks. Our empirical results show that banks with a safety-oriented culture increase the probability of signing a contract with low risk borrowers and that they charge lower loan spreads. We also find that these banks ask for more loan covenants to protect their creditor’s rights. Finally, banks with a safety-oriented culture suffer less from borrowers’ defaults and have higher market responses around the dates of loan announcements. Also, our findings reject the alternative hypothesis that banks with a safety-oriented culture only accept less risky lending due to their conservative risk attitude, thus destroying market value for banks.

Keywords: Bank culture, bank loan contracts, credit risk, default event, and market response

JEL Classification: G21, G24, G32, G34

Suggested Citation

Tang, Ning and Kamar, Amina and Lin, Chih-Yung and Lu, Chien-Lin, Bank Safety-oriented Culture and Lending Decisions (June 5, 2021). Available at SSRN: https://ssrn.com/abstract=3860627 or http://dx.doi.org/10.2139/ssrn.3860627

Ning Tang

National Yang Ming Chiao Tung University ( email )

National chiao tung university, 1001 university ro
Hsinchu, 1001
Taiwan

Amina Kamar

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE) ( email )

5 rue Félix Eboué
BP 3127
Limoges Cedex 1, 87031
France

Chih-Yung Lin (Contact Author)

National Yang Ming Chiao Tung University ( email )

National chiao tung university, 1001 university ro
Hsinchu, 1001
Taiwan

Chien-Lin Lu

National Ilan University ( email )

Yilan
Taiwan

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