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

Asghar Zardkoohi (), Eugene Kang, Donald Fraser and Albert A. Cannella
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Asghar Zardkoohi: Texas A&M University
Eugene Kang: Nanyang Technology University
Donald Fraser: Texas A&M University
Albert A. Cannella: Arizona State University

Journal of Business Ethics, 2018, vol. 149, issue 1, No 14, 233 pages

Abstract: Abstract We examine the implications of the US government’s 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.

Keywords: Too-big-to-fail; Moral hazard; Excessive risk-taking behavior; Performance (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10551-016-3133-7

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