 Bank safety-oriented culture and lending decisionsNing Tang, Amina Kamar, Chih-Yung Lin and Chien-Lin Lu Journal of Financial Stability, 2023, vol. 66, issue C Abstract: 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. Keywords: Bank culture; Bank loan contracts; Credit risk; Default event; Market response (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:66:y:2023:i:c:s1572308923000220 DOI: 10.1016/j.jfs.2023.101122 Access Statistics for this article Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman More articles in Journal of Financial Stability from Elsevier |
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