This study investigates the effects of bank safety-oriented cultures on loan contracts. We regress stock returns during the 1998 Long-Term Capital Management (LTCM) crisis on these risk-taking characteristics and obtain a residual component to proxy 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.

On August 21, 2000, the Singapore Exchange (SGX) adopted the call market method to open and close the market while the remainder of the day’s trading continued to rely on the continuous auction method. The call method significantly improved the price discovery process and market quality. A positive spillover effect is observed from the opening and closing calls. Day-end price manipulation also declined after the introduction of the call market method. However, the beneficial impact from the call market method is asymmetric, benefiting liquid stocks more than illiquid stocks.