@article{09a65c02f2c240b3aa30182530d09520,
title = "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.",
author = "Fenghua Song and Thakor, {Anjan V.}",
note = "Funding Information: This project was started while Song was visiting Singapore Management University, and he thanks its kind hospitality. For their helpful comments, we thank an anonymous referee, Murillo Campello (editor), Scott Bauguess, Natasha Burns, Charles Carlstrom, Andrew Ellul, Emre Ergungor, Mark Flannery, Stuart Greenbaum, Joe Haubrich, Jennifer Marietta-Westberg, Loretta Mester, George Pennacchi (discussant), Jillian Popadak Grennan, Adi Sunderam (discussant), Greg Udell, Lucy White (discussant), Ming Yang (discussant), and seminar participants at Indiana University (October 2015), Federal Reserve Bank of Cleveland (November 2015), SEC (November 2015), Washington University in St. Louis (November 2015), Central Bank of Portugal (March 2016), American Finance Association (AFA) annual meeting (January 2017), Fixed Income and Financial Institutions conference at the University of South Carolina (April 2017), Financial Intermediation Research Society (FIRS) annual conference in Hong Kong (June 2017), WFA-CFAR and JFI conference on the Post-Crisis Evolution of Bank and Financial Markets (October 2017), and Goethe University (October 2017). We along are responsible for any remaining errors. Publisher Copyright: {\textcopyright} 2018 Elsevier Inc.",
year = "2019",
month = jul,
doi = "10.1016/j.jfi.2018.06.005",
language = "English (US)",
volume = "39",
pages = "59--79",
journal = "Journal of Financial Intermediation",
issn = "1042-9573",
publisher = "Academic Press Inc.",
}