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

Jiafu An* (Corresponding Author), Mengfei Jiang, Jiaman Xu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-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 statusE-pub ahead of print - 11 Sep 2021

Keywords

  • Banking
  • Professional norms
  • Risk-taking
  • Field experiments

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