Does bank competition matter for performance and risk-taking? empirical evidence from BRICS countries

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Syed Moudud-Ul-Huq
Keyword(s):  
Financial Crisis ◽  
Risk Taking ◽  
Bank Performance ◽  
Bank Competition ◽  
Dynamic Panel ◽  
Content Type ◽  
Brics Countries ◽  
Risk Taking Behavior ◽  
Small Banks ◽  
The Relationship

PurposeThis study examines the relationship between banks' competition performance and risk-taking behavior concerning the impacts of bank size and the recent global financial crisis. The analysis empirically uses dynamic panel data from 1137 banks of the BRICS countries (i.e. Brazil Russia India China and South Africa) for the period 2000–2015.Design/methodology/approachDynamic panel generalized method of moments (GMM) has been used primarily to examine the effect of bank competition on performance and risk-taking. Later the paper validates the core results by using three-stage least squares (3SLS) and incorporating alternative measure of competition in baseline equations.FindingsThis study confirms the significant impact of competition that complies with the structure-conduct-performance hypothesis quiet life hypothesis and “competition fragility” view. However, the key robust results are as follows: (1) in competitive markets large banks are more efficient than small banks; (2) there is a nonlinear relationship between competition performance and risk; (3) across bank size competition heterogeneously affects profitability efficiency risk and stability; (4) notably small banks are as efficient as large banks during crisis but shared with risk; and (5) small banks also stable during crisis in highly concentrated markets but less stable in competitive environments.Practical implicationsThis study promotes higher market power for the bank's profitability and financial stability. More intently policymakers should nurture both cost and revenue efficiency for large banks as these are less efficient than small banks in concentrated markets though these banks produce risk. Hence those banks should be cautious to minimize non-performing loans and maximize stability regarding financial and efficiency. Based on the nonlinear pattern of competition the regulators should adopt different policies for short and long run. It also recommends encouraging commercial and cooperative banks in the BRICS region as these are more efficient risk-averse and better stabilized than other types of banks.Originality/valueA good number of studies are available in the current literature which examines the impact of bank competition on either bank performance or risk-taking in a single country or cross country analysis. However, very few studies examine the relationship between bank performance and risk-taking behavior concerning the impacts of competition (non-linear and quadratic) size financial crisis and ownership structure together. Moreover, there is a dearth of literature on this topic that built on BRICS economies.

Executive compensation and firm risk: an examination across industries

2018 ◽  
Vol 17 (3) ◽  
pp. 359-382 ◽  
Author(s):  
Stephen Abrokwah ◽  
Justin Hanig ◽  
Marc Schaffer
Keyword(s):  
Financial Crisis ◽  
Executive Compensation ◽  
Risk Taking ◽  
Financial Services ◽  
Firm Risk ◽  
Content Type ◽  
Risk Taking Behavior ◽  
The Impact ◽  
The Relationship

Purpose This paper aims to examine the impact of executive compensation on firm risk-taking behavior, measured by the volatility of stock price returns. Specifically, this analysis explores three hypotheses. First, the impact of short-term and long-term executive compensation packages on firm risk is analyzed to assess whether the packages incentivize risk-taking behavior. Second, the authors test how these compensation and risk relationships were impacted by the financial crisis. Third, they expand the analysis to see if the relationship varies across different industries. Design/methodology/approach The econometric approach used to examine the executive compensation and firm risk relationship takes the form of two different panel model specifications. The first model is a pooled model using the panel data of executive compensation, the firm-level control variables and volatility of stock market returns. The second model highlights the differences in the relationship between executive compensation and riskiness of firm behavior across industries. Findings The authors find a significant and robust relationship, showing that during the post-financial crisis period firms tended to use long-term compensation shares to reduce firm risk. They also find that the relationship between various compensation components and firm risk varies across industries. Specifically, the bonus share of compensation negatively impacted firm risk in the financial services industry, while it positively impacted risk in the transportation, communication, gas, electric and services sectors. Additionally, long-term compensation share exhibits an inverse relationship with firm risk in the financial services, manufacturing and trade industries. Originality/value The conclusions of this paper suggest that there is indeed a relationship between executive compensation and firm risk across industries. There was a notable change in the relationship however between firm risk and long-term compensation following the financial crisis, where firms used long-term compensation to reduce firm riskiness. In other words, the financial crisis changed the nature of this relationship across S&P 1500 firms. The last key finding is that there exist differences in risk and compensation relationships across industries, and these differences across industries are highlighted across both bonus share and long-term incentive share variables. This is the first study to explore this relationship across industries.

scholarly journals Risk-taking behavior, earnings quality, and bank performance: A profit frontier approach

2020 ◽  
Vol 23 (4) ◽  
pp. 285-304
Author(s):  
M. Pilar García-Alcober ◽  
Diego Prior ◽  
Emili Tortosa-Ausina ◽  
Manuel Illueca
Keyword(s):  
Financial Crisis ◽  
Interest Rates ◽  
Risk Taking ◽  
Banking System ◽  
Jel Classification ◽  
Bank Risk ◽  
Bank Performance ◽  
Bank Efficiency ◽  
Savings Banks ◽  
Risk Taking Behavior

After the financial crisis of 2007–2008, some bank performance dimensions have been the subject of debate, two of which are bank efficiency and bank risk-taking behavior. The literature on bank efficiency and productivity has grown considerably over the past three decades, and has gained momentum in the aftermath of the financial crisis. Interest in bank risk-taking behavior, usually focusing on its links to monetary policy, has been relatively low, but has also increased exponentially in more recent years. This article combines these two streams of research. Specifically, we test whether more inefficient banks take greater risks when selecting borrowers, charging interests, and requiring collateral, and whether these links between inefficiency and risk change according to the type of bank. Our analysis centers on the Spanish banking system, which has been severely affected by the burst of the housing bubble and has undergone substantial restructuring. To test our hypotheses, we created a database with information on banks and savings banks, their borrowers (non-financial firms), and the links between them. The study also contributes to the literature by considering a novel profit frontier approach. Our results suggest that more inefficient banks take greater risks in selecting their borrowers, and that this high-taking behavior is not offset by higher interest rates. JEL CLASSIFICATION C14; C61; G21; L50

Banking regulation and supervision: can it enhance stability in Europe?

2014 ◽  
Vol 6 (3) ◽  
pp. 244-269 ◽  
Author(s):  
Faten Ben Bouheni
Keyword(s):  
Risk Taking ◽  
Generalized Method Of Moments ◽  
Banking Regulation ◽  
European Countries ◽  
Bank Risk ◽  
Dynamic Panel ◽  
Content Type ◽  
Regulation And Supervision ◽  
European Banks ◽  
The Relationship

Purpose – This paper aims to find the effects of regulatory and supervisory policies on bank risk-taking. The same regulation and supervision have different effects on bank risk-taking depending on influence factors. These factors were considered and a sample of the largest European banks from France, Germany, UK, Italy, Spain and Greece was used over the period 2005-2011. Design/methodology/approach – In this paper, the author analyses the effects of regulation and supervision on risk-taking. The author uses a sample of the biggest banks from six European countries (France, UK, Germany, Italy, Spain and Greece) over the period 2005-2011. Because the applicable entry of IFRS was in 2005, thus data of European banks are not available before this date. For each country in the sample, the 10 largest banks (defined by total assets) that lend money to firms were identified. The author does not include central banks or postal banks, which generally do not lend money to firms and are described as non-banking institutions (La Porta et al., 2002). Findings – It was found that restrictions on bank activities, supervisors’ power and capital adequacy decrease risk-taking. Thus, regulation and supervision enhance bank’s stability. While, deposit insurance increases the risk due to its association to moral hazard. Finally, it was found that strengthening regulatory and supervisory framework raises the risk-taking and weakens the stability of European banks. Originality/value – The author contributes to existing empirical analyses in three ways. First, the existing literature has drawn a lot of attention on US banks. However, the purpose of this paper is to examine the biggest banks of three European leaders (France, Germany and UK) and three more European countries influenced by the recent crisis (Spain, Italy and Greece) over the period 2005-2011. Second, most studies focus mainly on the relationship between regulation and profitability, yet seldom on the relationship between regulation, supervision and risk-taking. The author focuses on this relationship. Third, this study applies the two-step dynamic panel data approach suggested by Blundell and Bond (1998) and also uses dynamic panel generalized method of moments (GMM) method to address potential problems. The two-step GMM estimator that the author uses is generally the most efficient.

Bank regulatory capital and liquidity creation: evidence from BRICS countries

2018 ◽  
Vol 13 (1) ◽  
pp. 218-230
Author(s):  
Muhammad Umar ◽  
Gang Sun ◽  
Khurram Shahzad ◽  
Zia-ur-Rehman Rao
Keyword(s):  
Emerging Economies ◽  
Risk Taking ◽  
Design Methodology ◽  
Econometric Model ◽  
Bank Capital ◽  
Least Squares Regression ◽  
Regulatory Capital ◽  
Content Type ◽  
Brics Countries ◽  
The Relationship

Purpose The purpose of this paper is to explore the relationship between bank regulatory capital and liquidity creation in banks of BIRCS countries. Design/methodology/approach Data from all publicly listed banks of BRICS nations for the period 2003-2014 have been collected and analyzed. Two-stage least-squares regression has been used to control endogeneity. The econometric model includes different control variables that have been selected based on the extant literature. Findings Increase in bank capital negatively affects bank liquidity creation which implies that “financial fragility-crowding out” hypothesis holds for banks of BRICS countries. Originality/value This study provides the evidence of the inverse relationship between bank regulatory capital and liquidity creation from emerging economies. The findings show that there is a trade-off between curtailing bank risk taking and liquidity creation. Therefore, the regulators must formulate policies to strike a balance between the two.

Corporate governance, European bank performance and the financial crisis

2019 ◽  
Vol 34 (3) ◽  
pp. 338-371
Author(s):  
Mohamed A. Ayadi ◽  
Nesrine Ayadi ◽  
Samir Trabelsi
Keyword(s):  
Financial Crisis ◽  
Risk Taking ◽  
Data Availability ◽  
Bank Performance ◽  
Governance Mechanisms ◽  
2008 Financial Crisis ◽  
Content Type ◽  
Euro Zone ◽  
The 2008 Financial Crisis ◽  
The Impact

PurposeThis paper aims to analyze the effects of internal and external governance mechanisms on the performance and risk taking of banks from the Euro zone before and after the 2008 financial crisis.Design/methodology/approachTo avoid macroeconomic problems and shocks and because of data availability, the authors select some countries of the Euro zone, namely, France, Belgium, Germany and Finland, during the 2004-2009 period. These countries share similar macroeconomic environments (unemployment, inflation and economic growth rates). All the data relating to the banks are manually drawn from the supervising reports submitted to banks and are available on the banks’ websites and/or on that of the AMF website. The banks included in our sample are drawn from the list of European central banks onwww.ecb.intFindingsThe empirical results show that banks undertake tradeoffs between different governance mechanisms to alleviate the intensity of the agency conflicts between the shareholders and managers. The findings also confirm that internal mechanisms and capital regulations are complementary and significantly impact bank performance.Research limitations/implicationsThis analysis can be extended through studying the interaction between bondholders’ governance and shareholders’ governance and their impact on the 2008 financial crisis.Practical implicationsThe changes in banking governance help banks find a useful and necessary way to avoid ill-considered risks that can cause a systemic risk. Therefore, some conditions should be met so that banking governance can contribute to the economic development.Social implicationsCulture and mentality of good banking governance must grow as much as possible through awareness-raising, training, promotion, recognition of performance, enhancing procedure transparency and stability of good banking governance and regulations, strengthening the national capacity to fight against corruption, and preventive mechanisms.Originality/valueThis paper complements previous studies, mainly those of Andres and Vallelado (2008) who examine the impact of the components of the board on banking performance and of Laeven and Levine (2009) who estimate the combined effect of regulatory and ownership structure on the risk-taking of each bank.

Sustainability reporting and bank performance after financial crisis

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Amina Buallay ◽  
Sayed M. Fadel ◽  
Jasim Alajmi ◽  
Shahrokh Saudagaran
Keyword(s):  
Developing Countries ◽  
Financial Crisis ◽  
Generalized Method Of Moments ◽  
Sustainability Reporting ◽  
Developed Countries ◽  
Bank Performance ◽  
Content Type ◽  
The 2008 Financial Crisis ◽  
The Impact ◽  
The Relationship

Purpose This study aims to examine the relationship between sustainability reporting and bank performance after financial crisis in developed and developing countries. Design/methodology/approach This study examines 882 banks from developed and developing countries covering 11 years after the 2008 financial crisis. The independent variable is environmental, social and governance (ESG) scores. The dependent variables are return on assets, return on equity and Tobin’s Q. This study uses bank- and country-specific control variables to measure the relationship between sustainability reporting and bank performance. Findings The findings deduced from the empirical results demonstrate that ESG improves banks’ accounting and market-based performance in developed countries, supporting value creation theory. Using pooling regression and instrumental variable – generalized method of moments, this study finds that ESG weakens banks’ performance in developed and developing countries. Originality/value To the best of the author’s knowledge, this is the first study to investigate and compare the impact of sustainability reporting on banks’ performance in developed and developing countries. The study found similarities in the impact of sustainability reporting and the improvement of banks’ current and future performance.

The impact of corporate social responsibility on the risk of commercial banks with different levels of financial constraint

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Liem Thanh Nguyen ◽  
Khuong Vinh Nguyen
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Risk Taking ◽  
Bank Risk ◽  
Bank Performance ◽  
Content Type ◽  
Corporate Social ◽  
The Impact ◽  
The Relationship ◽  
Different Levels

PurposeThis research investigates the link between corporate social responsibility (CSR) activities and bank risk-taking in Vietnam and introduces the constraint factor to see whether this link alters with different levels of constraint.Design/methodology/approachUsing a sample of commercial banks in Vietnam from 2008 to 2017, this study employs two-step system generalized method of moments (Sys GMM) with a finite sample correction mechanism to estimate the models.FindingsThe results suggest that CSR activities reduce bank risk-taking, and this relationship is only present in the case of financially constrained banks. Unconstrained banks, on the other hand, are more likely to invest in unnecessary CSR, thus reducing bank performance and increasing bank risk-taking.Research limitations/implicationsThe first implication from this study is that CSR activities might be considered as a risk-mitigating tool and should be invested in that respect. Secondly, regulatory units and investors should be more cautious about CSR expenditures since this type of spending could increase default risk, especially for banks with easy access to external financing. One particular limitation of this study is the low number of observations available for banks in Vietnam. Future studies could use texture analysis to expand the sample or consider macro-level governance characteristics to examine which factors might modify the relationship between CSR and bank risk.Originality/valueVery limited studies discussed the link between corporate social responsibility and bank performance and bank risk. There are even fewer papers examining the relationship between CSR and risk, and most of these papers deal with advanced economies. Furthermore, no studies investigate the interaction effect of CSR and financial constraint, which should be prevalent in developing countries on bank risk. As a consequence, the current study seeks to verify the impact of financial constraints on the link between CSR and bank risk.

scholarly journals Risk-taking behavior, competition, diversification and performance of frontier and emerging economy banks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nicholas Addai Boamah ◽  
Augustine Boakye-Dankwa ◽  
Emmanuel Opoku
Keyword(s):  
Risk Taking ◽  
Banking Sector ◽  
Emerging Economy ◽  
The State ◽  
Bank Performance ◽  
Income Diversification ◽  
Content Type ◽  
Excessive Competition ◽  
State Of The Economy ◽  
Risk Taking Behavior

PurposeThe study examines the dynamic association between competition, risk-taking, performance and income diversification of frontier and emerging economy (FEE) banks. It additionally, explores the effect of banking sector depth and economic performance on the level of competition, performance and risk-taking behavior of banks in these economies.Design/methodology/approachThe paper adopts a panel vector auto-regressive technique and collects data across ninety (90) FEEs.FindingsThe paper finds that competition increases with improvement in the depth of the banking sector, a surge in risk-taking behavior and the adoption of focused strategy by banks. Similarly, income diversification activities are driven by competition, banking sector depth, the state of the economy and bank performance. Additionally, risk-taking behavior, banking sector depth and the state of the economy are relevant in describing bank performance. Also, risk-taking behavior is influenced by bank performance, banking sector depth and economic growth.Originality/valueThe evidence indicates that although competition improves banking sector health, excessive competition and non-competitive banking environment constrain banks’ performance and stability.

Determinants of banks’ risk-taking behavior, stability and profitability: evidence from GCC countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abdulazeez Y.H. Saif-Alyousfi ◽  
Asish Saha
Keyword(s):  
Financial Crisis ◽  
Risk Taking ◽  
Global Financial Crisis ◽  
Generalized Method Of Moments ◽  
Macroeconomic Factors ◽  
Content Type ◽  
Risk Taking Behavior ◽  
Conventional Banks ◽  
The Stability ◽  
The Global Financial Crisis

Purpose This paper aims to examine the effect of bank-specific, financial structure and macroeconomic factors on the risk-taking behavior, stability and profitability of banks in Gulf Cooperation Council (GCC) economies during 1998–2017. Design/methodology/approach The authors use a two-step system generalized method of moments dynamic model to analyze the data. Findings The results show that non-traditional activities increase the risk and decrease the stability and profitability of banks that are highly capitalized, highly liquid and large. Banks in this group are less engaged in securities investments and their higher degree of loan exposure leads to a decrease in risk and an increase in their stability and profitability. Higher concentration increases the risk and decreases the stability and profitability of banks that are less capitalized, less liquid and small. Banks with a higher share of non-traditional activities are riskier and less stable and less profitable before the financial crisis. The study finds that banks with relatively higher capitalization and high lending growth rates are riskier, profitable and less stable during the crisis. Larger commercial banks are less risky and more stable and profitable than smaller banks before the global financial crisis. Islamic banks performed better in terms of fee income, capitalization, liquidity, asset quality and have higher market concentration than conventional banks. Originality/value The study provides the first comprehensive empirical evidence on the drivers of risk-taking behavior, stability and profitability of the GCC banks. It also investigates the differences across these variables based on the characteristics of financial strength such as capitalization, liquidity and size; before, during and after the financial crisis; and differences between Islamic and conventional banks.

scholarly journals Risk-Taking Behavior and the Consumption of Alcohol Mixed with Energy Drink among Australian, Dutch and UK Students

2021 ◽  
Vol 18 (10) ◽  
pp. 5315
Author(s):  
Sean J. Johnson ◽  
Sarah Benson ◽  
Andrew Scholey ◽  
Chris Alford ◽  
Joris C. Verster
Keyword(s):  
Alcohol Consumption ◽  
The Netherlands ◽  
Risk Taking ◽  
Positive Relationship ◽  
Energy Drinks ◽  
Energy Drink ◽  
Energy Drink Consumption ◽  
Risk Taking Behavior ◽  
The Relationship ◽  
Level Of Risk

The relationship between risk-taking behavior, alcohol consumption and negative alcohol-related consequences is well known. The current analyses were conducted to investigate whether alcohol mixed with energy drink (AMED) is related to risk-taking behavior and if there is a relationship between the amount of energy drink mixed with alcohol consumed, risk-taking behavior and negative alcohol-related consequences. Data from N = 1276 AMED consuming students from the Netherlands, UK and Australia who completed the same survey were evaluated. The analysis revealed that, compared to AMED occasions, on alcohol only (AO) occasions significantly more alcohol was consumed and significantly more negative alcohol-related consequences were reported. On both AO and AMED occasions, there was a strong and positive relationship between amount of alcohol consumed, level of risk-taking behavior and number of reported negative alcohol-related consequences. In contrast, the level of risk-taking behavior was not clearly related to energy drink consumption. Across risk-taking levels, differences in the amount of energy drink consumed on AMED occasions did not exceed one 250 mL serving of energy drink. When correcting for the amount of alcohol consumed, there were no statistically significant differences in the number of energy drinks consumed on AMED occasions between the risk-taking groups. In conclusion, alcohol consumption is clearly related to risk-taking behavior and experiencing negative alcohol-related consequences. In contrast, energy drink intake was not related to level of risk-taking behavior and only weakly related to the number of experienced negative alcohol-related consequences.

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