This study examines the value of language, as an important dimension of culture, to banks. Based on a unique hand-collected dataset of Chinese commercial banks and a county-level dialect dataset, we find that a higher degree of dialect similarity between the chairman and the CEO is associated with a higher return on assets, a higher return on equity, and a lower cost-to-income ratio, suggesting that dialect similarity plays a positive role in improving bank performance. Further analyses show that dialect similarity has no significant association with bank risk and bank expansion. In addition, it does not cause higher CEO pay or lower pay-performance sensitivity. These results indicate that dialect similarity does not lower the monitoring effectiveness. We also investigate the relation between dialect similarity and banks’ agency costs and the results show that dialect similarity reduces agency costs significantly. Our findings are robust to alternative measures of dialect similarity, the separation of the “dialect level effect”, and the potential endogeneity of dialect similarity.

Taking advantage of the institutional difference in capture between local and non-local media in China, we examined the association between media capture and post-earnings announcement drift (PEAD). Using both portfolio and regression analyses, we found that, for the same firms, non-local media coverage is negatively associated with PEAD; however, there is no association between local media coverage and PEAD, except for non-state-owned firms. Given that in China, non-local media are less captured or more independent than local media, the negative association observed for non-local media coverage can be interpreted as an indication that media independence plays a role in reducing PEAD or improving informational efficiency in the stock market.