Proactive risk-taking and loan performance: evidence from bank holding companies

Iftekhar Hasan, Mingsheng Li, Liuling Liu and Yun Zhu

Chapter 18 in Handbook of Financial Integration, 2024, pp 417-441 from Edward Elgar Publishing

Abstract: This chapter applies the resource-based view (RBV) and competency theory to investigate how effectiveness of risk management affects risk-taking and loan performance in bank holding companies (BHCs). It argues that effective risk management is a unique resource and offers firms comparative advantages in risk-taking. Using a comprehensive risk-management index (RMI) as a proxy for effective risk management in the context of BHCs, the authors find that high-RMI BHCs are more proactive in their risk-taking, more likely to lend to risky borrowers, and charge higher rates and fees. High-RMI banks are also diligent monitors, designing stringent contracts, forming concentrated syndicates, and experiencing fewer covenant violations and downgrades.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2024
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