Bank Liquidity Creation and Risk-Taking: Does Managerial Ability Matter?
Journal of Business Finance and Accounting, Forthcoming
41 Pages Posted: 21 Sep 2015 Last revised: 7 Nov 2015
Date Written: November 5, 2015
This study investigates the impact of managerial ability on banks' liquidity creation and risk-taking behavior. We find that higher ability managers create more liquidity and take more risk. During financial crisis times, however, higher ability bank managers reduce liquidity creation as a way to de-leverage their balance sheets. Our findings inform recent theoretical and empirical studies that investigate determinants of liquidity creation and risk by introducing managerial ability as a prominent antecedent of the banks' intermediation and risk-transforming service. Moreover, this study has policy-related implications, since managerial ability can be quantified as a key performance indicator for prudential supervision of banks and could help regulators to target intervention efforts more purposefully during crisis times.
Keywords: Financial Institutions; Managerial Ability; Liquidity Creation; Risk-Taking; Financial Crisis
JEL Classification: C45, G21, G28, E44, E51
Suggested Citation: Suggested Citation