The Halo Effect in Banking? Evidence from Polish Local Markets

Abstract

This study investigates depositors’ reactions to the performance of small local banks in Poland. I provide evidence that depositors respond reasonably to their banks’ performance, but at the same time, their predisposition toward their banks seems to improve with positive information about the performance of other local banks operating in the same neighborhood and using similar logotypes. On the other hand, indications of other local banks’ poor performance is much less likely to lower depositors’ opinion about their banks unless neighboring banks with similar logotypes generate extraordinary negative signals. Thus, I refer to the halo effect, that is, the phenomenon that knowledge with little analytical value for depositors’ decisions nevertheless affects them. It can be thus concluded that for an average small-sized bank, using a similar logotype as its neighbors is prudent, as a reputational gain is more probable than a reputational loss.