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

Author

Listed:
  • Asghar Zardkoohi

    (Texas A&M University)

  • Eugene Kang

    (Nanyang Technology University)

  • Donald Fraser

    (Texas A&M University)

  • Albert A. Cannella

    (Arizona State University)

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.

Suggested Citation

  • Asghar Zardkoohi & Eugene Kang & Donald Fraser & Albert A. Cannella, 2018. "Managerial Risk-Taking Behavior: A Too-Big-To-Fail Story," Journal of Business Ethics, Springer, vol. 149(1), pages 221-233, April.
    • Handle: RePEc:kap:jbuset:v:149:y:2018:i:1:d:10.1007_s10551-016-3133-7
    DOI: 10.1007/s10551-016-3133-7
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