Journal of Financial Intermediation Vol. 39 2019
Bank culture
Abstract
We develop a model in which bank culture improves upon outcomes attainable with incentive contracting. The bank designs a second-best incentive contract to induce the desired managerial effort allocation across growth and safety, but this induces excessive growth relative to the first best, a distortion exacerbated by interbank competition. Bank culture has two effects: it matches managers to banks with similar beliefs, and a safety-oriented culture reduces the competition-induced excessive growth focus. Culture is also contagious – a safety-oriented culture in some banks causes others to follow suit – this effect strengthens with higher bank capital and weakens with stronger safety nets.
- DOI
- 10.1016/j.jfi.2018.06.005
- Volume
- 39
- Pages
- 59-79
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref