Bond Liquidity, Risk Taking and Corporate Innovation

2019 ◽  
Author(s):  
Huong Dang ◽  
Ha Nguyen
Keyword(s):  
Risk Taking ◽  
Liquidity Risk ◽  
Corporate Innovation ◽  
Bond Liquidity

The impact of bank liquidity risk on risk-taking and bank lending: evidence from European bank

2021 ◽  
Vol 6 (2) ◽  
pp. 82-97
Author(s):  
Hongyan Liang ◽  
Zilong Liu
Keyword(s):  
Growth Rate ◽  
Risk Taking ◽  
Fixed Effects ◽  
Liquidity Risk ◽  
Bank Lending ◽  
Basel Iii ◽  
European Banks ◽  
Risk Taking Behavior ◽  
Loan Growth ◽  
The Impact

Objective – This paper uses a sample of annual observations of European banks to examine whether the liquidity risk affects a bank’s risk-taking behavior and its future loan growth. Methodology – A sample of European banks (27 member countries of the European Union plus U.K.) over the period of 2005 to 2019 are used in this study. Liquidity risk is measured by the ratio of liquid assets to total assets. Given the longitudinal nature of the data, the authors use panel regression with bank fixed effects to control for unobserved characteristics that might affect the dependent variable. Findings – The authors find that banks holding more liquid assets take less risk and show a higher subsequent loan growth rate. These results hold for both small and large banks. Novelty – To the authors’ best knowledge, this is one of the earliest studies to carefully examine the effects of liquidity risk on risk-taking behavior and loan growth rate for European banks. Our research suggests that the current Basel III requirement on liquidity ratio can decrease bank’s risking-taking behavior while not necessarily impact their future loan growth. Type of Paper: Empirical JEL Classification: G21, G01, G18. Keywords: Bank Liquidity Risk; Risk-taking Behavior; Loan Growth; Basel III

scholarly journals Spread determinants in corporate bond pricing: The effect of market and liquidity risks

2020 ◽  
pp. 2-2
Author(s):  
Menevşe Özdemir-Dilidüzgün ◽  
Ayşe Altıok-Yılmaz ◽  
Elif Akben-Selçuk
Keyword(s):  
Risk Premium ◽  
Emerging Market ◽  
Corporate Bonds ◽  
Liquidity Risk ◽  
Market Liquidity ◽  
Corporate Bond ◽  
Bond Pricing ◽  
High Yield ◽  
Bond Liquidity ◽  
Investment Grade

This paper investigates the effect of market and liquidity risks on corporate bond pricing in Turkey, an emerging market, and in Europe. Results show that corporate bond returns have exposure to liquidity factors and not to market factors in both settings. Corporate bonds issued in Turkey have significant exposure to fluctuations in benchmark treasury bond liquidity and corporate bond market liquidity; while corporate bonds issued in Eurozone have exposure to equity market liquidity and are sensitive to fluctuations in a 10-year generic government bond liquidity. The total estimated liquidity risk premium is 0.7% per annum for Turkish ?A? and above graded corporate bonds, and 1.08% for the last investment grade level (BBB-) long term bonds. For Eurozone, the total liquidity risk premium is 0.27% for investment grade 5-10 year term bonds, 1.05% for high-yield 1-5 year term bonds and 1.02% for high-yield 5-10 year term category.

Effect of Liquidity, Credit, and Solvency Risk on Corporate Innovation: Empirical Evidence from Emerging Economies & Developed Countries

2021 ◽  
Vol 39 (2) ◽  
Author(s):  
Manzoor Ali Isran ◽  
Anwar Hussain ◽  
Hafiz M. Shahid Irfan Aslam ◽  
Salman Bahoo
Keyword(s):  
Credit Risk ◽  
Emerging Economies ◽  
Significant Relationship ◽  
Liquidity Risk ◽  
Developed Countries ◽  
Panel Estimation ◽  
Dynamic Panel ◽  
Corporate Innovation ◽  
Relationship Of ◽  
The Relationship

This study aims to evaluate the relationship of liquidity risk, credit risk, solvency risk with corporate innovation in five emerging and nine developed countries during the period from 2002-2017. In this regard, we include 1304 firms’ data which is collected from Compustat. In addition, two-step system dynamic panel estimation is applied to evaluate the defined relationship. We found that credit risk and solvency risk are basic drivers to enhance the corporate innovation in selected countries. We found that credit risk and solvency risk have significant relationship with corporate innovation. Furthermore, liquidity risk has not found relationship with corporate innovation. Key words: Liquidity Risk, Credit Risk, Solvency Risk, Corporate Innovation

Funding liquidity risk and bank risk-taking in BRICS countries

2018 ◽  
Vol 13 (1) ◽  
pp. 231-248 ◽  
Author(s):  
Ahmed Mohamed Dahir ◽  
Fauziah Binti Mahat ◽  
Noor Azman Bin Ali
Keyword(s):  
Risk Factor ◽  
Risk Taking ◽  
Generalized Method Of Moments ◽  
Liquidity Risk ◽  
Bank Risk ◽  
Policy Makers ◽  
Substantial Impact ◽  
Content Type ◽  
Funding Liquidity ◽  
Brics Countries

Purpose The purpose of this paper is to examine the effects of funding liquidity risk and liquidity risk on the bank risk-taking. Design/methodology/approach This study employs a system generalized method of moments (GMM) estimation technique and a sample of 57 banks operating in BRICS countries over the period from 2006 to 2015. Findings The results reveal that liquidity risk has a significant and negative effect on the bank risk-taking, indicating that a decrease in liquidity risk contributes to higher bank risk-taking. The study also reveals that funding liquidity risk has the substantial impact on bank risk-taking, suggesting lower funding liquidity risk results in higher bank risk-taking. These results are consistent with prior assumptions. Research limitations/implications The implications of this study highlight the fact that liquidity risk is a risk factor which drives the potential bank default, of which banks tend to take more risks when higher funding liquidity exists. Practical implications This study offers a number of valuable implications for the policy makers as well as practitioners. The policy makers should take into account better liquidity risk management framework aimed at preventing banks from taking excessive risks. Bank executives must pay more attention on how banks could hold more liquid securities and cash. Less risk-taking reduces higher borrowing costs undermining earnings through imposing taxes on corporate. Originality/value This work uncovered that liquidity risk per se is an important and previously unidentified risk factor, specifically its effects on bank risk-taking and contributes to the view in support of holding more liquid securities than the past.

Funding liquidity risk and banks' risk-taking: Evidence from Islamic and conventional banks

2020 ◽  
Vol 64 ◽  
pp. 101436
Author(s):  
Houcem Smaoui ◽  
Karim Mimouni ◽  
Héla Miniaoui ◽  
Akram Temimi
Keyword(s):  
Risk Taking ◽  
Liquidity Risk ◽  
Funding Liquidity ◽  
Conventional Banks

Sooner or Later: Timing of Monetary Policy with Heterogeneous Risk-Taking

2016 ◽  
Vol 106 (5) ◽  
pp. 490-495 ◽  
Author(s):  
Dong Beom Choi ◽  
Thomas M. Eisenbach ◽  
Tanju Yorulmazer
Keyword(s):  
Monetary Policy ◽  
Risk Taking ◽  
Heterogeneous Agents ◽  
Liquidity Risk ◽  
Unconventional Monetary Policy ◽  
Targeted Interventions ◽  
Ex Post ◽  
Ex Ante ◽  
Discount Window ◽  
Transmission Of Monetary Policy

We analyze the effects and interactions of monetary policy tools that differ in terms of their timing and their targeting. In a model with heterogeneous agents, more productive agents endogenously expose themselves to higher interim liquidity risk by borrowing and investing more. Two inefficiencies impair the transmission of monetary policy: an investment- and a hoarding inefficiency. Heterogeneous agents respond disparately to ex-ante, conventional and ex-post, unconventional monetary policy. However, we show that the two policies are equivalent due to the endogeneity of hoarding. In contrast, targeted interventions such as discount-window lending can alleviate both inefficiencies at the same time.

Bond liquidity, risk taking and corporate innovation

2019 ◽  
Vol 16 (1) ◽  
pp. 101-119
Author(s):  
Ha D. Nguyen ◽  
Huong T.H. Dang
Keyword(s):  
Risk Taking ◽  
Fixed Effects ◽  
Market Liquidity ◽  
Standard Deviation Increase ◽  
Exogenous Shock ◽  
Content Type ◽  
Corporate Innovation ◽  
Liquidity Cost ◽  
Innovation Output

Purpose The purpose of this paper is to investigate how market liquidity condition of corporate bonds can affect firm investment policy, specifically its risk taking, via the disciplinary function of trading. Design/methodology/approach The paper uses fixed-effects OLS and Poisson regression for the baseline specifications. It also employs the introduction of TRACE in 2002 as an exogenous shock to bond trading infrastructure in a difference-to-difference framework to address endogeneity concerns and establish causality. Findings The paper documents a positive relationship between bond illiquidity and firms’ risk taking, specifically a one standard deviation increase in Amihud illiquidity measure is associated with nearly 20 percent increase in exploratory investments compared to CAPEX. The shift in risk taking in turn increases firms’ innovation output to some extent. Research limitations/implications The findings have important implications on firm’s risk taking and growth. The paper identifies a new channel through which firm’s choice of risk can be influenced, namely, bondholder disciplining. The study also has implications about externalities of trading beyond liquidity cost for regulators in designing market microstructure. Originality/value This is the first to study the disciplinary role of bond trading. Conventional wisdom holds that bondholders are passive creditors who do not engage in costly monitoring such as banks. The findings in this paper imply that this may not be the case.

Corporate governance and risk-taking of Islamic banks: evidence from OIC countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ejaz Aslam ◽  
Razali Haron
Keyword(s):  
Corporate Governance ◽  
Risk Taking ◽  
Audit Committee ◽  
Liquidity Risk ◽  
Bank Risk ◽  
Board Independence ◽  
Islamic Banks ◽  
Ceo Power ◽  
Content Type ◽  
Level Of Risk

Purpose This paper aims to investigate the impact of corporate governance and other related factors on the risk-taking of Islamic banks. Risk-taking is defined according to credit risk, liquidity risk and operational risk. Design/methodology/approach The study uses the two step system generalized method of moment (2SYS-GMM) estimation technique by using a panel data set of 129 Islamic banks (IBs) from 29 countries in the Middle East, South Asia and the Southeast Asia regions covering from 2008 to 2017. Governance variables incorporated include board size, board independence, chief executive officer (CEO) power, Shariah board and audit committee, as well as other control variables. Findings This study provides evidence that board size and Shariah board are positively and significantly related to credit and liquidity risk. Board independence and CEO power are negative and significantly associated with credit and liquidity risk, but the audit committee has a mixed relationship with bank risk. Male CEOs take more risk compared to the female and more board meeting has an inverse relationship with Islamic banks risk. Bank size, however, does not influence the level of risk in Islamic banks, but leverage has an inverse relationship with bank risk. Research limitations/implications The present study sheds light on the risk-taking behaviour of the board of IBs, particularly the board independence and CEO power reducing the level of risk in IBs thereby contributing to the agency theory. Therefore, regulators and policymakers can use the findings of this study to strengthen the internal corporate governance mechanism to protect IBs at a time of financial distress. Moreover, it increases the trust of the shareholders and stakeholders in the effectiveness of governance reforms that have been pursued to reap long-term benefits. Originality/value To the best of the knowledge, this research is preliminary in examining the board behaviour on risk-taking of IBs from four different regions. The results are robust and suggest that the board of directors mitigate the level of risk in IBs.

Investors’ Financial Health and Municipal Bond Liquidity Risk

2019 ◽  
Author(s):  
Tao Chen ◽  
Shinichi Kamiya ◽  
Pingyi Lou
Keyword(s):  
Liquidity Risk ◽  
Municipal Bond ◽  
Financial Health ◽  
Bond Liquidity
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