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

Nguyen, D.D.; Nguyen, L.; Vathunyoo, S.

doi:10.1111/1467-8551.12300

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

Nguyen, D.D.; Nguyen, L.; Vathunyoo, S.

Authors

Professor Louis Nguyen duc.d.nguyen@durham.ac.uk
Professor

S. Vathunyoo

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 emphasizes control and safety. Our findings cannot be explained by heterogeneity in a bank's business model, CEO compensation incentives or 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., Nguyen, L., & Vathunyoo, S. (2019). Does Corporate Culture Affect Bank Risk-Taking? Evidence from Loan-Level Data. British Journal of Management, 30(1), 106-133. https://doi.org/10.1111/1467-8551.12300

Journal Article Type	Article
Acceptance Date	Feb 13, 2018
Online Publication Date	Jan 30, 2019
Publication Date	2019-01
Deposit Date	Sep 9, 2021
Publicly Available Date	Feb 7, 2022
Journal	British Journal of Management
Print ISSN	1045-3172
Electronic ISSN	1467-8551
Publisher	Wiley
Peer Reviewed	Peer Reviewed
Volume	30
Issue	1
Pages	106-133
DOI	https://doi.org/10.1111/1467-8551.12300
Public URL	https://durham-repository.worktribe.com/output/1251055

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Copyright Statement
This is the peer reviewed version of the following article: Nguyen, D. D., Nguyen, L. & Vathunyoo, S. (2019). Does Corporate Culture Affect Bank Risk-Taking? Evidence from Loan-Level Data. British Journal of Management 30(1): 106-133., which has been published in final form at https://doi.org/10.1111/1467-8551.12300. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.