Corporate culture can reduce disparities in financial services

By Kevin Manne

BUFFALO, N.Y. —  Consumers in communities of color receive significantly poorer financial services than those in low-minority communities, but stronger competition among banks and specific practices within them can help level the playing field, according to new research from the University at Buffalo School of Management.

Recently published in the Journal of Accounting Research, the study found that people living in communities where most residents are people of color filed far more complaints than those in predominantly white communities. And the disparity surged during the COVID-19 pandemic, with complaints from minority communities rising by more than 60%.

“Corporate behavior makes a difference,” says study co-author Feng (Jack) Jiang, PhD, associate professor of finance in the UB School of Management. “While a bank’s overall environmental, social and governance rating did not predict complaint levels, specific practices — such as offering sustainable products, ensuring fair credit terms and diversifying leadership — proved critical in lowering the number of complaints.”

The researchers analyzed hundreds of thousands of consumer complaints filed with the Consumer Financial Protection Bureau, and matched them with community demographics, bank competition data and corporate diversity measures. Using statistical models, they compared complaint patterns before and during COVID-19 to show how corporate practices can reduce inconsistencies in financial services.

Their findings show that greater competition in local banking markets also reduced disparities in services, supporting theories that competition discourages discriminatory practices. 

“By prioritizing fair promotion practices and transparent lending, firms can build more equitable financial systems, especially during times of crisis,” says Jiang. “For banks, these efforts aren’t just good for reputation, they can directly reduce complaints and build trust.”

Jiang collaborated on the study with Rachael Hayes, PhD, the George S. and Dolores Doré Eccles Presidential Chair in Financial Reporting and professor of accounting, and Yijui Pan, PhD, associate professor of finance from the University of Utah David Eccles School of Business; and Huayi Tang, PhD, assistant professor of finance, economics and international business in the Marshall University Lewis College of Business.