Bank systemic risk and CEO overconfidence

Jin-Ping Lee, Edward Lin (), James Juichia Lin and Yang Zhao

The North American Journal of Economics and Finance, 2020, vol. 54, issue C

Abstract: This study examines the relationship between CEO overconfidence and banking systemic risk. We employ the CoVaR (Conditional Value-at-Risk) approach to measure a bank's contribution to systemic risk and compute its MES (Marginal Expected Shortfall) and SRISK (Systemic Risk index) to measure the exposure to banking systemic risk. We use a stock options based measure for CEO overconfidence and explore how managerial overconfidence could be associated with banking systemic risk. Using data for U.S. banks from 1995–2014, we find evidence that banks with overconfident CEOs have a higher contribution and exposure to systemic risk than banks with non-overconfident CEOs. We also show that the impact of CEO overconfidence contributed significantly more to systemic risk during the financial crisis of 2008–2009.

Keywords: CEO Overconfidence; Finance crisis; Banking; Systemic risk (search for similar items in EconPapers)
JEL-codes: G01 G21 G32 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s106294081830487x

DOI: 10.1016/j.najef.2019.03.011

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