Skip to main content
SpringerLink
Log in

The impact of organizational culture on bank stability

  • Original Research
  • Published:
Review of Quantitative Finance and Accounting Aims and scope Submit manuscript

Abstract

This paper examines the impact of organizational culture on bank stability. We rely on the Competing Values Framework (CVF) to identify the four cultural dimensions of banks, namely Control, Collaborate, Compete and Create cultures. Using the textual analysis technique and banks’ annual reports, we obtain organizational culture values in conjunction with the CVF for a large sample of US-listed banks from 1994 to 2020. We find that banks with cultures leaning toward consistency, monitoring, and control practices (i.e., Control-oriented and Compete-oriented cultures) exhibit a higher level of stability. Additional analyses show that Control-oriented banks have higher asset quality and are less risky, whereas Compete-oriented banks have higher asset quality and better financial performance. We also find that the impact of culture on bank stability is more pronounced during “non-crisis” periods and is more prominent for small and medium-sized banks.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Source: Adapted from Cameron et al. (2006)

Fig. 2

Source: Adapted from Hartnell et al. (2011)

Similar content being viewed by others

Notes

  1. For example, banks are highly leveraged, have more complex and opaque assets, and have a more complicated governance structure due to high agency conflicts among bank managers, creditors, and shareholders (Morgan 2002; Flannery et al. 2004; Lepetit et al. 2018).

  2. Our choice of using annual reports for textual analysis is motivated by the fact that they are official documents used by banks to communicate with outsiders, including investors, debtholders, business partners, regulators, and supervisors, as well as the general public. In addition, banks’ annual reports incorporate both the banks’ lending activities and other important business activities, such as quality assurance, human resource strategies, risk management activities, expansion strategies, and mergers and acquisitions strategies. Thus, banks’ annual reports provide an extensive source of information that enables us to capture the organizational culture of banks effectively.

  3. For expositional convenience, the terms BHC and bank will be used interchangeably.

  4. A 10-K form is a comprehensive report filed annually by a publicly listed company about its business and financial condition. The U.S. Securities and Exchange Commission (SEC) is in charge of requiring the report.

  5. Board characteristics and CEO’s compensation data are retrieved from the ExecuComp database.

  6. All stock data is sourced from the CRSP database.

  7. We thank the anonymous reviewer for this suggestion.

  8. We also ran several analyses to examine how organizational culture affects other performance measures of banks, including Tobin’s Q, return on equity (ROE), and the standard deviation of ROE (SDROE). The results show that compete-oriented culture positively impacts Tobin’s Q and ROE while lowering banks’ SDROE. We also find that Collaborate-oriented and Create-oriented cultures negatively impact Tobin’s Q. However, Create-oriented culture can improve banks’ ROE and reduce SDROE. Results are available upon request.

  9. The variable Crisis is also included in the regression model but is omitted after we control for state-year fixed effects.

References

  • Adhikari BK, Agrawal A (2016) Does local religiosity matter for bank risk-taking? J Corp Finance 38:272–293

    Google Scholar 

  • Ahamed MM, Mallick SK (2019) Is financial inclusion good for bank stability? International evidence. J Econ Behav Organ 157:403–427

    Google Scholar 

  • Altunbaş Y, Thornton J, Uymaz Y (2020) The effect of CEO power on bank risk: do boards and institutional investors matter? Finance Res Lett 33:101202

    Google Scholar 

  • Ariss RT (2010) On the implications of market power in banking: evidence from developing countries. J Bank Finance 34(4):765–775

    Google Scholar 

  • Barth A, Mansouri S (2021) Corporate culture and banking. J Econ Behav Organ 186:46–75

    Google Scholar 

  • Beck T, De Jonghe O, Schepens G (2013) Bank competition and stability: cross-country heterogeneity. J Financ Intermed 22(2):218–244

    Google Scholar 

  • Bengt H (1989) Agency costs and innovation. J Econ Behav Organ 12(3):305–327

    Google Scholar 

  • Bhandari A, Mammadov B, Thevenot M, Vakilzadeh H (2022) Corporate culture and financial reporting quality. Account Horiz 36(1):1–24

    Google Scholar 

  • Bhattacharya S, Thakor AV (1993) Contemporary banking theory. J Financ Intermed 3(1):2–50

    Google Scholar 

  • Bilgin MH, Danisman GO, Demir E, Tarazi A (2021) Economic uncertainty and bank stability: conventional vs. Islamic banking. J Financ Stab 56:100911

    Google Scholar 

  • Boot AW, Gopalan R, Thakor AV (2008) Market liquidity, investor participation, and managerial autonomy: why do firms go private? J Finance 63(4):2013–2059

    Google Scholar 

  • Boyd JH, De Nicolo G (2005) The theory of bank risk taking and competition revisited. J Finance 60(3):1329–1343

    Google Scholar 

  • Cameron KS, Quinn RE (2011) Diagnosing and changing organizational culture: based on the competing values framework. Wiley, Hoboken

    Google Scholar 

  • Cameron KS, De Graff J, Quinn RE, Thakor A (2006) Competing values leadership: creating value in organisations. Edward Elgar, Cheltenham

    Google Scholar 

  • Campbell TC, Gallmeyer M, Johnson SA, Rutherford J, Stanley BW (2011) CEO optimism and forced turnover. J Financ Econ 101(3):695–712

    Google Scholar 

  • Carretta A, Farina V, Martelli D, Fiordelisi F, Schwizer P (2011) The impact of corporate governance press news on stock market returns. Eur Financ Manag 17(1):100–119

    Google Scholar 

  • Carretta A, Farina V, Fiordelisi F, Schwizer P, Lopes FSS (2015) Don’t stand so close to me: the role of supervisory style in banking stability. J Bank Finance 52:180–188

    Google Scholar 

  • Cho J (2004) Flexibility, instability and institutional insecurity in Korean labor market. J Policy Model 26(3):315–351

    Google Scholar 

  • Day GS (1994) The capabilities of market-driven organizations. J Mark 58(4):37–52

    Google Scholar 

  • De Bruyckere V, Gerhardt M, Schepens G, Vander Vennet R (2013) Bank/sovereign risk spillovers in the European debt crisis. J Bank Finance 37(12):4793–4809

    Google Scholar 

  • Demirgüç-Kunt A, Detragiache E (2011) Basel core principles and bank soundness: does compliance matter? J Financ Stab 7(4):179–190

    Google Scholar 

  • Denison DR (1990) Corporate culture and organizational effectiveness. Wiley, Hoboken

    Google Scholar 

  • Deshpandé R, Farley JU (1999) Executive insights: corporate culture and market orientation: comparing Indian and Japanese firms. J Int Mark 7(4):111–127

    Google Scholar 

  • DeYoung R, Roland KP (2001) Product mix and earnings volatility at commercial banks: evidence from a degree of total leverage model. J Financ Intermed 10(1):54–84

    Google Scholar 

  • DeYoung R, Torna G (2013) Nontraditional banking activities and bank failures during the financial crisis. J Financ Intermed 22(3):397–421

    Google Scholar 

  • Duho KCT, Onumah JM, Owodo RA (2019) Bank diversification and performance in an emerging market. Int J Manag Finance 16(1):120–138

    Google Scholar 

  • Ellul A, Yerramilli V (2013) Stronger risk controls, lower risk: evidence from US bank holding companies. J Finance 68(5):1757–1803

    Google Scholar 

  • Fahlenbrach R, Prilmeier R, Stulz RM (2012) This time is the same: using bank performance in 1998 to explain bank performance during the recent financial crisis. J Finance 67(6):2139–2185

    Google Scholar 

  • Fiordelisi F, Ricci O (2014) Corporate culture and CEO turnover. J Corp Finance 28:66–82

    Google Scholar 

  • Fiordelisi F, Ricci O (2021) Corrigendum to “Corporate culture and CEO turnover” [Journal of Corporate Finance, 28 (2014) 66–82]. J Corp Finance 70:102064

    Google Scholar 

  • Fiordelisi F, Renneboog L, Ricci O, Lopes SS (2019) Creative corporate culture and innovation. J Int Financ Mark Inst Money 63:101137

    Google Scholar 

  • Flamholtz E (2001) Corporate culture and the bottom line. Eur Manag J 19(3):268–275

    Google Scholar 

  • Flannery MJ, Kwan SH, Nimalendran M (2004) Market evidence on the opaqueness of banking firms’ assets. J Financ Econ 71(3):419–460

    Google Scholar 

  • Froot KA, Scharfstein DS, Stein JC (1993) Risk management: coordinating corporate investment and financing policies. J Finance 48(5):1629–1658

    Google Scholar 

  • Goetz MR (2018) Competition and bank stability. J Financ Intermed 35:57–69

    Google Scholar 

  • Gordon GG (1991) Industry determinants of organizational culture. Acad Manag Rev 16(2):396–415

    Google Scholar 

  • Gorton GB, Grennan J, Zentefis AK (2022) Corporate culture. Annu Rev Financ Econ 14:535–561

    Google Scholar 

  • Graham JR, Grennan J, Harvey CR, Rajgopal S (2022) Corporate culture: evidence from the field. J Financ Econ 146(2):552–593

    Google Scholar 

  • Group of Thirty (2015) Banking conduct and culture: a call for sustained and comprehensive reform. Monograph, Washington, D.C. (July)

  • Guiso L, Sapienza P, Zingales L (2015a) The value of corporate culture. J Financ Econ 117(1):60–76

    Google Scholar 

  • Guiso L, Sapienza P, Zingales L (2015b) Corporate culture, societal culture, and institutions. Am Econ Rev 105(5):336–339

    Google Scholar 

  • Hall S (1993) Culture, community, nation. Cult Stud 7(3):349–363

    Google Scholar 

  • Haq M, Heaney R (2012) Factors determining European bank risk. J Int Finan Mark Inst Money 22(4):696–718

    Google Scholar 

  • Haq M, Hu D, Faff R, Pathan S (2018) New evidence on national culture and bank capital structure. Pac Basin Finance J 50:41–64

    Google Scholar 

  • Hartnell CA, Ou AY, Kinicki A (2011) Organizational culture and organizational effectiveness: a meta-analytic investigation of the competing values framework’s theoretical suppositions. J Appl Psychol 96(4):677

    Google Scholar 

  • Hasan MM (2022) Corporate culture and bank debt. Finance Res Lett 49:103152

    Google Scholar 

  • Heryán T, Tzeremes PG (2017) The bank lending channel of monetary policy in EU countries during the global financial crisis. Econ Model 67:10–22

    Google Scholar 

  • Ho PH, Huang CW, Lin CY, Yen JF (2016) CEO overconfidence and financial crisis: evidence from bank lending and leverage. J Financ Econ 120(1):194–209

    Google Scholar 

  • Jin JY, Kanagaretnam K, Lobo GJ, Mathieu R (2017) Social capital and bank stability. J Financ Stab 32:99–114

    Google Scholar 

  • Kanagaretnam K, Lim CY, Lobo GJ (2011) Effects of national culture on earnings quality of banks. J Int Bus Stud 42(6):853–874

    Google Scholar 

  • Kanagaretnam K, Lim CY, Lobo GJ (2014) Influence of national culture on accounting conservatism and risk-taking in the banking industry. Account Rev 89(3):1115–1149

    Google Scholar 

  • Khan MS, Scheule H, Wu E (2017) Funding liquidity and bank risk taking. J Bank Finance 82:203–216

    Google Scholar 

  • Kim D, Sohn W (2017) The effect of bank capital on lending: does liquidity matter? J Bank Finance 77:95–107

    Google Scholar 

  • Köhler M (2015) Which banks are more risky? The impact of business models on bank stability. J Financ Stab 16:195–212

    Google Scholar 

  • Kotter JP, Heskett JL (1992) Corporate culture and performance. The Free Press, New York

    Google Scholar 

  • Laeven L, Levine R (2009) Bank governance, regulation and risk taking. J Financ Econ 93(2):259–275

    Google Scholar 

  • Lence SH (1997) Recent structural changes in the banking industry, their causes and effects: a literature survey. Appl Econ Perspect Policy 19(2):371–402

    Google Scholar 

  • Lepetit L, Strobel F (2015) Bank insolvency risk and Z-score measures: a refinement. Financ Res Lett 13:214–224

    Google Scholar 

  • Lepetit L, Nys E, Rous P, Tarazi A (2008a) Bank income structure and risk: an empirical analysis of European banks. J Bank Finance 32(8):1452–1467

    Google Scholar 

  • Lepetit L, Nys E, Rous P, Tarazi A (2008b) The expansion of services in European banking: implications for loan pricing and interest margins. J Bank Finance 32(11):2325–2335

    Google Scholar 

  • Lepetit L, Meslier C, Strobel F, Wardhana L (2018) Bank dividends, agency costs and shareholder and creditor rights. Int Rev Financ Anal 56:93–111

    Google Scholar 

  • Leuz C, Triantis A, Wang TY (2008) Why do firms go dark? Causes and economic consequences of voluntary SEC deregistrations. J Account Econ 45(2–3):181–208

    Google Scholar 

  • Levinson SC (2003) Language and mind: let’s get the issues straight. Lang Mind Adv Study Lang Thought 25:46

    Google Scholar 

  • Li K, Griffin D, Yue H, Zhao L (2013) How does culture influence corporate risk-taking? J Corp Finance 23:1–22

    Google Scholar 

  • Li K, Mai F, Shen R, Yan X (2021) Measuring corporate culture using machine learning. Rev Financ Stud 34(7):3265–3315

    Google Scholar 

  • Malmendier U, Tate G (2005) CEO overconfidence and corporate investment. J Financ 60(6):2661–2700

    Google Scholar 

  • Morgan MJ (1993) How corporate culture drives strategy. Long Range Plan 26(2):110–118

    Google Scholar 

  • Morgan DP (2002) Rating banks: Risk and uncertainty in an opaque industry. Am Econ Rev 92(4):874–888

    Google Scholar 

  • Murphy P (1989) Creating and encouraging ethical corporate structures. Sloan Manag Rev 30(2):425

    Google Scholar 

  • Nguyen DD, Nguyen L, Sila V (2019) Does corporate culture affect bank risk-taking? Evidence from loan-level data. Br J Manag 30(1):106–133

    Google Scholar 

  • Nier EW (2005) Bank stability and transparency. J Financ Stab 1(3):342–354

    Google Scholar 

  • O’Neill RM, Quinn RE (1993) Editors’ note: applications of the competing values framework’. Hum Resour Manag 32(1):1–7

    Google Scholar 

  • O’Reilly CA, Chatman JA (1996) Culture as social control: corporations, cults, and commitment. Organ Dyn 10(1):30–48

    Google Scholar 

  • Park S, Peristiani S (2007) Are bank shareholders enemies of regulators or a potential source of market discipline? J Bank Finance 31(8):2493–2515

    Google Scholar 

  • Pathan S, Faff R (2013) Does board structure in banks really affect their performance? J Bank Finance 37(5):1573–1589

  • Pettigrew AM (1979) On studying organizational cultures. Adm Sci Q 24(4):570–581

    Google Scholar 

  • Quinn RE, Rohrbaugh J (1983) A spatial model of effectiveness criteria: towards a competing values approach to organizational analysis. Manag Sci 29(3):363–377

    Google Scholar 

  • Repullo R (2004) Capital requirements, market power, and risk-taking in banking. J Financ Intermed 13(2):156–182

    Google Scholar 

  • Sadri G, Lees B (2001) Developing corporate culture as a competitive advantage. J Manag Dev 20(10):853–859

    Google Scholar 

  • Schaeck K, Cihák M (2014) Competition, efficiency, and stability in banking. Financ Manag 43(1):215–241

    Google Scholar 

  • Schaeck K, Cihak M, Maechler A, Stolz S (2012) Who disciplines bank managers? Rev Finance 16(1):197–243

    Google Scholar 

  • Schein EH (1984) Culture as an environmental context for careers. J Organ Behav 5(1):71–81

    Google Scholar 

  • Schein EH (1985) Defining organizational culture. Class Organ Theory 3(1):490–502

    Google Scholar 

  • Schein EH (2009) The corporate culture survival guide. Wiley, New York

    Google Scholar 

  • Schein EH (2010) Organizational culture and leadership, vol 2. Wiley, Hoboken

    Google Scholar 

  • Schneider B, Ehrhart MG, Macey WH (2013) Organizational climate and culture. Annu Rev Psychol 64(1):361–388

    Google Scholar 

  • Scholz S (1987) Corporate culture and strategy: the problem of strategic fit. Long Range Plan 20(4):78–87

    Google Scholar 

  • Schwartz H, Davis SM (1981) Matching corporate culture and business strategy. Organ Dyn 10:30–48

    Google Scholar 

  • Song F, Thakor AV (2019) Bank culture. J Financ Intermed 39:59–79

    Google Scholar 

  • Tellis GJ, Prabhu JC, Chandy RK (2009) Radical innovation across nations: the preeminence of corporate culture. J Mark 73(1):3–23

    Google Scholar 

  • Thakor A (2016) Corporate culture in banking. Econ Policy Rev 22:5–16

    Google Scholar 

  • Tremblay A (2020) Cultural differences, synergies and mergers and acquisitions. Synergies and mergers and acquisitions. SSRN working paper

  • Wagner W (2007) The liquidity of bank assets and banking stability. J Bank Finance 31(1):121–139

    Google Scholar 

  • Westrum R (2004) A typology of organisational cultures. Qual Saf Health Care 13(2):22–27

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Faculty of Finance and Banking, VNU University of Economics and Business, Hanoi, Vietnam

    Hiep Ngoc Luu

  2. Institute of Economics and Strategic Management, Hanoi, Vietnam

    Hiep Ngoc Luu, Kieu Trang Vu & Loan Quynh Thi Nguyen

  3. College of Business & Management, VinUniversity, Hanoi, Vietnam

    Lan Thi Mai Nguyen

  4. University of Wollongong, Wollongong, Australia

    Kieu Trang Vu

  5. National Economics University, Hanoi, Vietnam

    Loan Quynh Thi Nguyen

Authors
  1. Hiep Ngoc Luu
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Lan Thi Mai Nguyen
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Kieu Trang Vu
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Loan Quynh Thi Nguyen
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Lan Thi Mai Nguyen.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Luu, H.N., Nguyen, L.T.M., Vu, K.T. et al. The impact of organizational culture on bank stability. Rev Quant Finan Acc 61, 501–533 (2023). https://doi.org/10.1007/s11156-023-01155-2

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11156-023-01155-2

Keywords

JEL Classification

Search

Navigation