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Monday, August 2 • 10:45am - 12:15pm
1B3 Managerial Ability and the Success in Corporate Risk-Management: The Case of the Banking and Insurance Industry

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Jingshu Luo, LeMoyne College; Rajiv Banker; Hyunjin Oh; Mutak Trepathi

Success in corporate risk management implies a firm can capture investment opportunities and minimize the adverse risks at the same time. In this paper, we study the impact of managerial ability on the success of corporate risk managements using the US banking and insurance industry. Using a two-stage Data Envelopment Analysis (DEA) approach, we quantify managerial ability in the two industries. Employing this measure, we find that high-ability managers take risks to grow their firms but they can also keep their realized risk low. In particular, we show that banks and insurers with higher managerial ability have more investment opportunities. To best use these opportunities, they take more ex ante financial risks by choosing greater leverage and lower capital surplus. At the same time, we find that high-ability mangers are good at integrating and managing risks. Insurers and banks with higher-ability managers are more able to keep the realized solvency risk and profitability risk low. These results show the importance of the managerial ability to the success of corporate risk management.

Discussant
EB

Emil Bustos

Stockholm School of Economics

Presenters
avatar for Jingshu Luo

Jingshu Luo

Le Moyne College



Monday August 2, 2021 10:45am - 12:15pm EDT