Chapter 25 - Making Inference of Bank Managerial Preferences About Performance: A Panel Analysis

Abstract

This study reveals managerial preferences regarding bank performance. In particular, the focus is on what managers think in pursuing cost and revenue performance enhancing strategies. We propose a flexible managerial behavior function that would provide a measurement of managerial preferences. Using bank level data from EU-15 from 2008 to 2015, we estimate managerial preferences while controlling for various market conditions. Asymmetries in managerial preferences in cost versus revenue performance are detected across markets, over time, or across various types of financial institutions. In general, preference toward revenue performance is strong, though the cost emphasis hypothesis also is reported for some bank managers. This study provides a way of modeling managerial preferences. This is the first time that such evidence of managers’ behavior about their underlying optimization strategy is revealed.