Escalation at the Credit Window: A Longitudinal Study of Bank Executives' Recognition and Write-Off of Problem Loans

Although the escalation literature has grown steadily over the past 20 years, there has been very little research bridging the gap between laboratory experiments and qualitative field studies on escalation. What has been missing are quantitative tests of escalation hypotheses in their natural contex...

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Bibliographic Details
Published in:Journal of applied psychology 1997-02, Vol.82 (1), p.130-142
Main Authors: Staw, Barry M, Barsade, Sigal G, Koput, Kenneth W
Format: Article
Language:English
Subjects:
Bank loans
Bank management
Banking
Banking industry
Banks
Biological and medical sciences
Business
Business and Industrial Personnel
California
Credit
Debt
Debt restructuring
Debts
Decision Making
Employee Turnover
Executives
Financial institutions
Fundamental and applied biological sciences. Psychology
Human
Hypotheses
Laboratories
Loan losses
Loans
Longitudinal Studies
Miscellaneous
Occupational psychology
Problems
Psychology
Psychology. Psychoanalysis. Psychiatry
Psychology. Psychophysiology
Repayments
Responsibility
Statistical analysis
Studies
Top Level Managers
Writeoffs
Citations: Items that cite this one
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Summary:Although the escalation literature has grown steadily over the past 20 years, there has been very little research bridging the gap between laboratory experiments and qualitative field studies on escalation. What has been missing are quantitative tests of escalation hypotheses in their natural context. This study helps fill such a gap by testing the responsibility hypothesis within the banking industry. It was predicted that the turnover of senior bank managers would lead to a deescalation of commitment to problem loans. Data collected from 132 California banks over a 9-year period showed that bank executive turnover predicted both provisions for loan losses and the write-off of bad loans. In contrast, provisions and write-offs were not found to influence executive turnover. The implications of these results are discussed in terms of both the escalation literature and practical ways to improve decision making in the banking industry.
ISSN:0021-9010
1939-1854
DOI:10.1037/0021-9010.82.1.130