The effect of culture on risk-taking activities of banks

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Abstract

One of the topical issues under debate in bank governance is the effect of organizational culture on bank risk (Nguyen, Nguyen, & Sila, 2019; Srivastav & Hagendorff, 2016). We contribute to this discourse by examining the impact of organizational culture on the risk behavior of banks in South Africa. Using the generalized least squares (GLS) estimation which controls autocorrelation and heteroskedasticity, we found that banks with externally-oriented cultural values (create and compete) are more likely to take more credit risk whereas banks with an internally focused culture (collaborate) are less likely to take high risk. We, however, could not find evidence of the role of control-oriented culture on bank risk-taking activities. Our findings are robust to alternative specifications. Our results also show that remuneration (bonus deferment and clawbacks) moderates the relationship between culture and bank risk, particularly in banks with an external focus. Our evidence carries governance and regulatory implications.

Keywords: Organizational Culture, Risk-Taking, Moderate, Banks, GLS, South Africa

Authors’ individual contribution: Conceptualization — T.M.; Methodology — T.M.; Software — T.M.; Validation — S.G.; Formal Analysis — T.M.; Investigation — T.M. and S.G.; Resources — S.G.; Data Curation — T.M.; Writing — Original Draft — T.M.; Writing — Review & Editing — S.G.; Visualization — S.G.; Supervision — S.G.; Project Administration — T.M.; Funding — S.G.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G1, G21, G30, G32, M14

Received: 24.01.2022
Accepted: 14.07.2022
Published online: 15.07.2022

How to cite this paper: Gani, S., & Mashamba, T. (2022). The effect of culture on risk-taking activities of banks. Corporate Governance and Organizational Behavior Review, 6(3), 8–18. https://doi.org/10.22495/cgobrv6i3p1