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

See all articles by Panayiotis C. Andreou

Panayiotis C. Andreou

Cyprus University of Technology

Dennis Philip

Durham University - Department of Economics and Finance

Peter Paul Robejsek

PwC Strategy&

Date Written: November 5, 2015

Abstract

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

Andreou, Panayiotis C. and Philip, Dennis and Robejsek, Peter Paul, Bank Liquidity Creation and Risk-Taking: Does Managerial Ability Matter? (November 5, 2015). Journal of Business Finance and Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2663030

Panayiotis C. Andreou

Cyprus University of Technology ( email )

School Of Management and Economics
P.O. Box 50329
Lemesos, 3036
Cyprus

HOME PAGE: http://www.pandreou.com

Dennis Philip (Contact Author)

Durham University - Department of Economics and Finance ( email )

Department of Economics and Finance
Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Peter Paul Robejsek

PwC Strategy& ( email )

Friedrich-Ebert-Anlage 35-37
Frankfurt
Germany

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