Managerial Risk-Taking Behavior: A Too-Big-To-Fail Story

abstract

• 2016, Springer Science+Business Media Dordrecht. We examine the implications of the US governments too-big-to-fail (TBTF) policy as it has been applied to banks. Using alternative measures of risk, we compare the risk-taking behavior of 11 TBTF banks, identified by the Comptroller of the Currency in 1984, to a number of non-TBTF banks. We provide both theory and new empirical evidence to support our argument that the TBTF policy leads management to significantly increase risk-taking, with no corresponding increase in performance. While prior studies have considered the effects of the TBTF policy on limited, but risk-related aspects of bank behavior, such as the cost of funds, our study provides direct evidence about the risk-taking behavior associated with the TBTF policy. Our study has important implications for the current political debate regarding the too-big-to-fail policy.

authors

• Cannella, Albert

published proceedings

• JOURNAL OF BUSINESS ETHICS

author list (cited authors)

• Zardkoohi, A., Kang, E., Fraser, D., & Cannella, A. A.

citation count

• 9

complete list of authors

• Zardkoohi, Asghar||Kang, Eugene||Fraser, Donald||Cannella, Albert A

publication date

• April 2018

publisher

• Springer Nature  Publisher

published in

• Journal of Business Ethics  Journal

keywords

• Excessive Risk-taking Behavior
• Moral Hazard
• Performance
• Too-big-to-fail

Digital Object Identifier (DOI)

• 10.1007/s10551-016-3133-7

start page

• 221

end page

• 233

volume

• 149

issue

• 1

URL

• http://dx.doi.org/10.1007/s10551-016-3133-7