The impact of organizational culture on bank stability

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.