Banking under Conflict: Managers and Organizational Design

How do organizations adapt internally when ethnic divisions intensify? We develop a model in which organizations jointly choose managerial appointments and delegation when locally matched managers have better information but are less aligned with headquarters, and test it using a panel of Ethiopian bank branches. Exploiting variation in banks’ exposure to ethnic conflict across their branch networks, we find that conflict increases the appointment of locally matched managers, while reducing lending autonomy and leaving branch credit mostly unaffected. Conflict-exposed branches are more likely to be staffed by insiders reassigned within the bank. An LLM-based CEO vignette exercise corroborates this mechanism.