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Bank systemic risk and CEO overconfidence
Affiliation:1. Fengchia University, Taiwan;2. Department of Statistics, Tunghai University, Taiwan;3. National Chiao Tung University, Taiwan;4. Institute of Finance, National Chiao Tung University, Taiwan;1. Department of Finance, Fujian Business University, 19, Huang Pu, Gulou District, Fuzhou, Fujian, People''s Republic of China;2. Department of Finance, College of Economics, Jinan University, No. 601 Huangpu Avenue West, Guanzhou, Guandong 510632, People’s Republic of China;1. Western Kentucky University, Bowling Green KY42101, USA;2. Utah Valley University, Orem, UT 84058, USA;3. Indiana Business Research Center, Indiana University, Bloomington, IN 47405, USA;1. Department of Finance, National Taiwan University, Taiwan;2. Institute of Statistical Science, Academia Sinica, Taiwan;3. Department of Finance, National Sun Yat-sen University, Taiwan;1. Department of Financial Engineering and Actuarial Mathematics, Soochow University, 56, Kuei-Yang Street, Section 1, Taipei 100, Taiwan;2. Deputy Manager, Market Risk Management Department, Fubon Financial Holding Company, Taiwan;1. California State University, USA;2. National Chiao Tung University, Taiwan;3. Providence University, Taiwan;4. China University of Technology, Taiwan
Abstract:This study examines the relationship between CEO overconfidence and banking systemic risk. We employ the CoVaR (Conditional Value-at-Risk) approach to measure a bank's contribution to systemic risk and compute its MES (Marginal Expected Shortfall) and SRISK (Systemic Risk index) to measure the exposure to banking systemic risk. We use a stock options based measure for CEO overconfidence and explore how managerial overconfidence could be associated with banking systemic risk. Using data for U.S. banks from 1995–2014, we find evidence that banks with overconfident CEOs have a higher contribution and exposure to systemic risk than banks with non-overconfident CEOs. We also show that the impact of CEO overconfidence contributed significantly more to systemic risk during the financial crisis of 2008–2009.
Keywords:CEO Overconfidence  Finance crisis  Banking  Systemic risk
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