The Effects of Financial Crisis on the Organizational Reputation of Banks

[We’re pleased to welcome authors Mario R. Englert of Lauda Dr. R. Wobser GmbH & Co. KG, Christopher Koch of the University Mainz, and Jens Wüstemann of the University of Mannheim. They recently published an article in Business & Society entitled “The Effects of Financial Crisis on the Organizational Reputation of Banks: An Empirical Analysis of Newspaper Articles,” which is currently free to read for a limited time. Below, they reflect on the impact and innovations of this research:

What motivated you to pursue this research?

In the financial crises, the public heavily criticized banking organization. In particular, we observed that some banks were more harshly criticized than others despite having a similar exposure to the financial crisis. This perceived mismatch of blame allocation motivated us to investigate what characteristics of banking organizations are associated with higher levels of blame and, thus, larger losses of organizational reputation during the financial crisis. Thereby, we also wanted to provide suggestions for a “winning strategy” to overcome such a difficult situation (for which also many banks are – even today – still looking for).

Were there any specific external events—political, social, or economic—that influenced your decision to pursue this research?

Clearly, the financial crisis and the strong public attention in the aftermath of the crisis influenced our decision to follow this stream of research. The public pressure was ubiquitous coming along with fundamental shifts in institutional economics. This situation has led to changes of organizational structures and business models of financial institutions as well as new regulatory conditions, with new and revised laws (e.g., the “Single Rulebook” within the EU) and regulatory institutions (e.g., the foundation of the “Single Supervisory Mechanism” in the Euro Area). The following quest for the right external response of banks (e.g., the proclamation of cultural change) that was observable across all media channels further influenced us to follow this research.

What has been the most challenging aspect of conducting your research? Were there any surprising findings?

Data gathering, data sampling, and data analyses were clearly one of the main challenges to conduct our research. We wanted to investigate the public opinion over time with regards to a coherent and powerful sample leaving us with quite a demanding task to get and compile the necessary information. Therefore, we hand-collected a consistent sample of newspaper articles covering the entire German market (hence, we included regional and national newspapers across the entire geography of the country) for an eight year period. Using semantic analyses based on pre-defined as well as self-compiled semantic dictionaries, we came up with a powerful sample and interesting results. Besides the results discussed in the paper, we also observed some surprising patterns. For instance, we observed that some individual savings and mutual banks (although being heavily invested in the US subprime market) gained on public reputation during the financial crisis (leading to a hypothesis that there was a thinking among the public that “if there are so many ‘villains’ out there, there must also be some [local] ‘heroes’”). It has also been fascinating to see that we could identify systematic results in the individual newspaper’s stance towards banking organizations (not reported in the paper). For example, newspapers geographically close the banking organization’s headquarters reported more positively about it. Further, newspapers with a left-wing readership took generally a more negative stance towards the banking industry in general.

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