Communicating Culture Consistently: Evidence from Banks

Abstract

Code-switching occurs when the language used to express a concept shifts across audiences. What does code-switching across stakeholders reveal about a firm's type? Using the banking industry as a laboratory, I find an inverse relation between code-switching and value creation. For intuition, I offer a model in which executives optimally pair a combination of incentive pay and narrative (e.g., honest bankers) that may not match between executives and non-executives. This mismatch minimizes costs in low-risk times but amplifies them in high-risk times. Empirically, the code-switching relation is evident during multiple downturns, potentially offering insight into debates surrounding culture, risk management, and transparency.