Professional norms and risk-taking of bank employees: Do expectations of peers’ risk preferences matter?

Jiafu AN*, Mengfei JIANG, Jiaman XU

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review

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 languageEnglish
Article number100938
Number of pages13
JournalJournal of Financial Stability
Volume56
Early online date11 Sep 2021
DOIs
Publication statusPublished - Oct 2021
Externally publishedYes

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

Cite this