Imprinting a Risky Logic: Graduate Business Education and Bank Risk-Taking

• In Event: 3541 - The Economic Sociology of Knowledge and Expertise

Abstract

Commercial banks in the United States have taken on more risk since the 1980s, indicating a shift in the dominant institutional logic within the sector, from one that emphasizes financial stability to another one that promotes greater risk-taking to maximize profits. But why did certain banks embrace risky practices more actively than others? Building on imprinting theory, we theorize how CEOs’ educational background shapes their affinity toward logics and related organizational practices. Using the case of graduate business education, we argue that banks’ reliance on risky practices was shaped by a market-based logic emphasized in generalist MBA education in U.S. business schools. Using data on 186 large commercial banks from 1993 to 2013, our analysis shows that there was a strong relationship between the educational background of CEOs and banks’ use of brokered deposits—a riskier source of funding that contributed to bank instability during the credit crisis. Banks with MBA-trained CEOs were heavier users of brokered deposits, while banks with CEOs that attended specialized banking education programs were less likely to rely on this funding source. Our study contributes to multiple fields of research about bank risk-taking, graduate business education, and institutional logics.

Authors

• Jiwook Jung, University of Illinois at Urbana-Champaign

• Kim Pernell, University of Toronto

• Taekjin Shin, San Diego State University