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

In: Handbook of Financial Integration

Author

Listed:
  • Iftekhar Hasan
  • Mingsheng Li
  • Liuling Liu
  • Yun Zhu

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.

Suggested Citation

  • Iftekhar Hasan & Mingsheng Li & Liuling Liu & Yun Zhu, 2024. "Proactive risk-taking and loan performance: evidence from bank holding companies," Chapters, in: Guglielmo M. Caporale (ed.), Handbook of Financial Integration, chapter 18, pages 417-441, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:21716_18
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    File URL: https://www.elgaronline.com/doi/10.4337/9781803926377.00027
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    Keywords

    Economics and Finance;

    Statistics

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