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

Asghar Zardkoohi, Eugene Kang, Donald Fraser, Albert A. Cannella

Research output: Contribution to journalArticlepeer-review

11 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)221-233
Number of pages13
JournalJournal of Business Ethics
Volume149
Issue number1
DOIs
StatePublished - Apr 1 2018

Keywords

  • Excessive risk-taking behavior
  • Moral hazard
  • Performance
  • Too-big-to-fail

ASJC Scopus subject areas

  • Business and International Management
  • General Business, Management and Accounting
  • Arts and Humanities (miscellaneous)
  • Economics and Econometrics
  • Law

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