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Article
Publication date: 29 May 2020

Alessandro Bucciol, Federico Guerrero and Dimitra Papadovasilaki

The purpose of this paper is to study the relationship between financial risk-taking and trait emotional intelligence (EI).

1067

Abstract

Purpose

The purpose of this paper is to study the relationship between financial risk-taking and trait emotional intelligence (EI).

Design/methodology/approach

An incentivized online survey was conducted to collect the data, including measurements for cognitive ability and socio-demographic characteristics.

Findings

There is a positive correlation between trait EI and financial risk-taking that is at least as large as that between risk-taking and measures of cognitive control (CRT). Trait EI is a key determinant of risk-taking. However, not all components of trait EI play an identical role. In fact, we observe positive effects of well-being, mainly driven by males and sociability. Self-control seems to matter only for males.

Research implications/limitations

This study suffers from the bias of self-reported answers, a common limitation of all survey studies.

Practical implications

This evidence provides a noncognitive explanation for the typically observed heterogeneity of financial risk-taking, in addition to more established explanations linked to cognitive skills. Investor profiles should be also determined on their trait EI.

Social implications

Governments should start programs meant to improve the level of trait EI to ameliorate individual wealth outcomes. Female investors participation in the financial markets might increase by fostering their sociability.

Originality/value

The relationship between trait EI and each of its components with financial risk-taking is vastly unexplored, while it is the first time that gender effects are discussed in that set up.

Details

Review of Behavioral Finance, vol. 13 no. 3
Type: Research Article
ISSN: 1940-5979

Keywords

Article
Publication date: 1 July 2014

Jeanette Carlsson Hauff

The purpose of this paper is to examine the effect of trust on financial risk-taking in a pension investment setting. Further: to delineate the effects of varying levels of…

1361

Abstract

Purpose

The purpose of this paper is to examine the effect of trust on financial risk-taking in a pension investment setting. Further: to delineate the effects of varying levels of individuals’ financial knowledge and involvement on risk-taking, and on the trust-risk-taking relation.

Design/methodology/approach

Questionnaire to a subsample of Swedish bank customers, thereafter statistical analysis using multiple moderated regression.

Findings

Support the notion of trust being an influential variable in explaining risk-taking, and show that highly knowledgeable and highly involved individuals take on more risk. That individuals defined by knowledge and involvement have a different trust-risk-taking relation, however, not verified.

Research limitations/implications

Adds to the body of research emphasising the importance of “soft”, emotionally tilted input to consumers’ decision making, even concerning financial tasks such as risk-taking. Narrowly defined pension system environment may hamper generalisations since many constructs tested are situation specific.

Practical implications

From a practical perspective, individual investment behaviour is of increasing importance for the individual as retirement saver and for the financial industry in its attempt to tailor-make financial products to its customers. From a legislators’ perspective, the dimensions of knowledge and involvement describe the type of consumer supposedly most vulnerable: the uninterested individual with low levels of financial knowledge.

Originality/value

Tests the importance of trust on choice of risk level in a pension setting and is able to expand previous results into the area of consumer behaviour regarding pensions. The paper further manages to assess the specificities as regards the relation between trust and risk-taking for individuals with varying levels of knowledge and involvement.

Details

International Journal of Bank Marketing, vol. 32 no. 5
Type: Research Article
ISSN: 0265-2323

Keywords

Article
Publication date: 15 August 2016

Sascha Strobl

This study investigates the risk-taking behavior of financial institutions in the USA. Specifically, differences between taking risks that affect primarily the shareholders of the…

1495

Abstract

Purpose

This study investigates the risk-taking behavior of financial institutions in the USA. Specifically, differences between taking risks that affect primarily the shareholders of the institution and risks contributing to the overall systemic risk of the financial sector are examined. Additionally, differences between risk-taking before, during and after the financial crisis of 2007/2008 are examined.

Design/methodology/approach

To analyze the determinants of stand-alone and systemic risk, a generalized linear model including size, governance, charter value, business cycle, competition and control variables is estimated. Furthermore, Granger causality tests are conducted.

Findings

The results show that systemic risk has a positive effect on valuation and that corporate governance has no significant effect on risk-taking. The influence of competition is conditional on the state of the economy and the risk measure used. Systemic risk Granger-causes idiosyncratic risk but not vice versa.

Research limitations/implications

The major limitations of this study are related to the analyzed subset of large financial institutions and important risk-culture variables being omitted.

Practical implications

The broad policy implication of this paper is that systemic risk cannot be lowered by market discipline due to the moral hazard problem. Therefore, regulatory measures are necessary to ensure that individual financial institutions are not endangering the financial system.

Originality/value

This study contributes to the empirical literature on bank risk-taking in several ways. First, the characteristics of systemic risk and idiosyncratic risk are jointly analyzed. Second, the direction of causality of these two risk measures is examined. Moreover, this paper contributes to the discussion of the effect of competition on risk-taking.

Details

The Journal of Risk Finance, vol. 17 no. 4
Type: Research Article
ISSN: 1526-5943

Keywords

Open Access
Article
Publication date: 5 July 2024

Tough Chinoda and Forget Mingiri Kapingura

The study examines the role of regulation in the fintech-based financial inclusion (FBFI)–risk-taking nexus in the Sub-Saharan African (SSA) region.

Abstract

Purpose

The study examines the role of regulation in the fintech-based financial inclusion (FBFI)–risk-taking nexus in the Sub-Saharan African (SSA) region.

Design/methodology/approach

Using a sample of 10 countries in SSA over the period 2014 to 2021, the study employed the fixed-effect regression model and the two-step generalized method of moments (GMM) estimator.

Findings

The results show that FBFI mitigates commercial banks risk-taking in SSA. But as FBFI progresses, the association takes the shape of an inverted U, increasing risks initially and decreasing them later on. Effective supervision and regulatory quality, in particular, are essential in moderating this relationship by offsetting the adverse consequences of FBFI in its early stages.

Research limitations/implications

First, while our sample is limited to banks in ten SSA countries, future studies could extend the sample size, enabling more explicit generalization of the results. Second, the FBFI–bank risk nexus can be explored further by comparing diverse forms of fintech participation, such as fintech company investment, fintech technology investment, cooperation with specific fintech service providers and cooperation with Internet giants.

Practical implications

Policymakers, banks and fintech companies should collaborate to certify the sustainable utilization of fintech tools to ensure financial inclusion. Policymakers should craft policies that encourage effective supervision and regulatory quality of fintechs since they reduce banks' risk-taking practices, which usually have positive effect on the economy.

Originality/value

The study adds value to the debate on the role of regulation on the FBFI–risk-taking nexus, taking into account countries that are at different levels of development.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2054-6238

Keywords

Article
Publication date: 1 August 2024

Andrea Ceschi, Matilde Dusi, Michela Ferrara, Francesco Tommasi and Riccardo Sartori

The way in which managers differ when confronted with risky options or when evaluating different alternatives constitutes a fundamental part of organizational risk management…

Abstract

Purpose

The way in which managers differ when confronted with risky options or when evaluating different alternatives constitutes a fundamental part of organizational risk management. This study aims to investigate how managerial risk-taking attitudes (i.e. ethical and financial risk-taking as a trade-off between benefit and riskiness) change over time and based on gender.

Design/methodology/approach

The authors conducted a cross-sectional study on a sample of Italian executives and measured their perceptions of risk-taking, risk perception and risk-benefit, all referring to the company they worked for in the ethical and financial domain. The study also collected demographic data to gather information on age and gender. The authors analyzed data collected using multilevel analysis.

Findings

The results show that perceived benefits are the main drivers of risk-taking attitudes in both domains. Age and gender are not significant direct predictors of risk, but interactions with domains reveal insightful patterns.

Originality/value

Overall, this study highlights the need to assess the whole pattern of relationships emerging from the range of situational variables characterizing a specific population. Concerning the organizational context, it means addressing the role of organizational variables in influencing risk-taking so as to determine the extent to which organizational policies are indeed effective in fostering efficient organizational risk management.

Details

International Journal of Organizational Analysis, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1934-8835

Keywords

Article
Publication date: 26 September 2023

Çağrı Hamurcu, Hayriye Dilek Yalvac Hamurcu and Merve Karakuş

This study aimed to examine the financial risk-taking behaviors of adult individuals diagnosed with attention deficit hyperactivity disorder (ADHD).

Abstract

Purpose

This study aimed to examine the financial risk-taking behaviors of adult individuals diagnosed with attention deficit hyperactivity disorder (ADHD).

Design/methodology/approach

The study was conducted with adults (n = 80) diagnosed with ADHD and healthy controls (n = 80). In order to measure risk-taking in the financial domain, the items in the investment and gambling sub-dimensions of the Domain-Specific Risk-Taking Scale (DOSPERT) were applied.

Findings

Adults with ADHD had higher investment and gambling risk-taking and expected benefits scores than the control group, and there was no difference between the two groups in terms of risk perceptions. In the regression analysis, there was a positive linear relationship between the investment and gambling risk-taking scores and the expected benefits scores in both groups. There was a negative linear relationship between investment risk-taking and risk perceptions scores only in the control group.

Originality/value

In terms of investment and gambling, both risk-taking and expected benefits are greater in individuals with ADHD. It has been observed that while healthy individuals take investment risks, they evaluate according to the expected benefits and risk perceptions, while individuals with ADHD make evaluations only according to the expected benefits, risk perceptions do not predict financial risk-taking in individuals with ADHD. When it comes to risk-taking related to gambling, both groups take risks only according to their expectations of benefits, not their perceptions of risk. The study provides outputs that can contribute to the literature in terms of the effects of ADHD diagnosis on financial decision-making processes in the context of risk-taking.

Details

Review of Behavioral Finance, vol. 16 no. 3
Type: Research Article
ISSN: 1940-5979

Keywords

Article
Publication date: 9 November 2012

Isaac Ofoeda, Joshua Abor and Charles K.D. Adjasi

The purpose of this study is to examine the relationship between regulation of non‐bank financial institutions and their risk‐taking behaviours in Ghana.

2667

Abstract

Purpose

The purpose of this study is to examine the relationship between regulation of non‐bank financial institutions and their risk‐taking behaviours in Ghana.

Design/methodology/approach

The analysis is performed using data derived from the Bank of Ghana Database during a five‐year period, 2006‐2010. Correlated Panels Corrected Standard Errors model is used to estimate the regression equation. Capital adequacy requirements and the restrictions on non‐bank financial institutions' (NBFIs') ability to take deposits are used as proxies for regulatory pressure. The study also used the ratio of risks weighted assets‐to‐total assets, the ratio of non‐performing loans‐to‐net loans and the Z‐scores of NBFIs as measures of risk.

Findings

The results of the study show a negative relationship between minimum capital adequacy requirement and the risks weighted assets of NBFIs. This indicates that, asking NBFIs to keep higher minimum capital adequacy ratio results in reducing their risk‐taking. The results also indicate a positive relationship between regulatory pressure and risk weighted assets of NBFIs. The paper however found a negative relationship between restrictions on deposits and the risk of insolvency. The findings suggest that, non‐deposit‐taking NBFIs have higher risk weighted assets and are more prone to the risk of insolvency than deposit‐taking NBFIs.

Originality/value

The value of this study is in respect of its contribution to the extant literature on financial regulation and risk‐taking of NBFIs.

Details

Journal of Financial Regulation and Compliance, vol. 20 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Open Access
Article
Publication date: 3 January 2023

Magnus Jansson, Magnus Roos and Tommy Gärling

This paper aims to investigate whether loan officers' risk taking in credit decisions are associated with their personal financial risk preference and personality traits or solely…

5547

Abstract

Purpose

This paper aims to investigate whether loan officers' risk taking in credit decisions are associated with their personal financial risk preference and personality traits or solely with bank-contextual and loan-relevant factors.

Design/methodology/approach

An online survey administered in six large Swedish banks to 163 loan officers responsible for assessing credit risk and approval of loan applications. The loan officers rated their likelihood of approving fictitious loan applications from business companies.

Findings

The loan officers' credit risk taking is associated with bank-contextual factors, directly with perceived organizational credit risk norms and indirectly with self-confidence in assessing credit risks through attitude to credit risk taking. A direct association is also found with personal financial risk preference but not with personality traits.

Research limitations/implications

Increased awareness of that loan officers' personal financial risk preference is associated with their credit risk taking in loan decisions but that the banks' risk policy has a stronger association. Banks' managements and boards should therefore assure that their credit risk policy is implemented, followed and being aligned with their performance incentives.

Practical implications

Increased awareness of that loan officers' credit risk taking is associated with personal financial risk preference but more strongly with the banks' risk policy that motivate banks' managements and boards to assure that their credit risk policy is implemented, followed and being aligned with their performance incentives.

Originality/value

The first study which directly compare the associations of loan officers' risk taking in credit approvals with personal risk preference and personality traits versus bank-contextual factors and loan-relevant information.

Details

Managerial Finance, vol. 49 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 22 November 2017

Sibel Dinç Aydemir and Selim Aren

This study aims to examine the roles of individual factors on risky investment intention as an indicator of risky financial behavior.

3240

Abstract

Purpose

This study aims to examine the roles of individual factors on risky investment intention as an indicator of risky financial behavior.

Design/methodology/approach

The data were collected from a survey instrument and composed of 496 individuals’ responses. The authors exploited structural equation modelling and multigroup structural equation modelling for direct and indirect effects, respectively.

Findings

Results indicate that emotional intelligence and locus of control have a positive impact on financial risk-taking, while risk aversion in general has the negative one. Although financial literacy does not have a direct effect on risky financial behavior, it has important role as a moderator variable, interacting with external locus of control.

Originality/value

The authors expect this study to contribute into behavioral finance literature in two ways. First, they investigate joint and relative effects of four major factors (i.e. emotional intelligence, locus of control, risk aversion in general and financial literacy) identified in the literature on financial risk-taking of individual investors. Each belongs to a different venue in an individual’s psyche and therefore is expected to influence financial risk-taking through different mechanisms. However, the research arguing their roles on the financial risky behavior directly is very limited. Investigating their individual effects is likely to provide unique insights into our understanding of risky financial behavior. Second, the authors also posit and manifest that the effects of the first three of the aforementioned factors on risk-taking intentions are moderated by financial literacy. This finding is likely to provide rather valuable insights pertaining to the emergence of risk-taking behaviors and may shed light on the root reasons behind equivocal findings in previous research regarding the effect of each factor.

Details

Kybernetes, vol. 46 no. 10
Type: Research Article
ISSN: 0368-492X

Keywords

Article
Publication date: 10 June 2022

Nadia Loukil and Ouidad Yousfi

The current paper studies how CEO attributes could influence corporate risk-taking. The authors examine the effects of CEO demographic attributes and CEO position's attributes on…

Abstract

Purpose

The current paper studies how CEO attributes could influence corporate risk-taking. The authors examine the effects of CEO demographic attributes and CEO position's attributes on financial and strategic risk-taking.

Design/methodology/approach

This study is drawn on non-financial firms listed on the SBF120 index, between 2001 and 2013.

Findings

First, long-tenured CEOs are prone to decrease the total risk and the leverage ratio. Second, despite the many CEOs have political connections; they are not prone to engage in risky decisions not serving the business' interests. Third, old CEOs are likely to rely on debt to fund internal growth. Moreover, business and science-educated CEOs behave differently in terms of risk-taking. Finally, the authors show that CEOs' attributes have less influential effects in family firms than in non-family firms. Also, they seem to have more significant associations with risk-taking during and after the financial subprime crisis.

Originality/value

This paper examines how cognitive traits could shape investments decisions, in terms of risk preferences.

Details

Asia-Pacific Journal of Business Administration, vol. 15 no. 5
Type: Research Article
ISSN: 1757-4323

Keywords

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