Bank Liquidity Creation and Risk‐Taking: Does Managerial Ability Matter?

34 Pages Posted: 21 Mar 2016

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: January-February 2016

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 times of financial crisis, 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 times of crisis.

Keywords: financial institutions, managerial ability, liquidity creation, risk‐taking, financial crisis

Suggested Citation

Andreou, Panayiotis C. and Philip, Dennis and Robejsek, Peter Paul, Bank Liquidity Creation and Risk‐Taking: Does Managerial Ability Matter? (January-February 2016). Journal of Business Finance & Accounting, Vol. 43, Issue 1-2, pp. 226-259, 2016. Available at SSRN: https://ssrn.com/abstract=2752181 or http://dx.doi.org/10.1111/jbfa.12169

Panayiotis C. Andreou (Contact Author)

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

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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