Abstract
Using experimental data, we document that the impact of professional norms on the risk-taking of bank employees depends on their expectations of peers’ risk preferences. When the professional identity of bank employees is made salient, those who expect colleagues to take more risk than themselves increase risky investments by 5.2% points in a mock investment task, while others do not statistically change their risk-taking behaviors. Data from placebo experiments with non-bank employees do not exhibit such empirical patterns. The results are consistent with peer effects and social identity theories, and challenge the existing evidence that professional norms in the banking industry decrease risk-taking.
| Original language | English |
|---|---|
| Article number | 100938 |
| Number of pages | 13 |
| Journal | Journal of Financial Stability |
| Volume | 56 |
| Early online date | 11 Sept 2021 |
| DOIs | |
| Publication status | Published - Oct 2021 |
| Externally published | Yes |
Bibliographical note
We thank the Editor, Iftekhar Hasan, and two anonymous referees for the very helpful and constructive comments. We thank Chen Lin, Jo Danbolt, Andrew Wood, Seth Armitage, Yizhe Dong, Wenxuan Hou, Tinghua Duan, Xianda Liu, Ziwei Xu, Xi Liang, Xiao Han, and Ruoran Zhao for helpful discussions. All remaining errors are our own.Keywords
- Banking
- Field experiments
- Professional norms
- Risk-taking