The Determinants of Bank Risk Taking: Evidence From Jordan

This study examines the determinants of bank risk taking for a sample of 15 Jordanian banks, according to Basel I and Basel II standards for capital regulation and by testing the relationship between bank risk taking and banks financial information using multiple linear regression analysis. The study found that most Jordanian banks committed to capital adequacy ratio regulations which decrease the bank risk taking, Bank Risk Taking (RSK) was found to be adversely affected by Capital Adequacy Ratio (CAR), The Franchise value (FRN) has a negative effect on bank risk taking (RSK), The Stable Shareholder (HLD) variable has a significant positive effect on Bank Risk Taking (RSK). The squared value of Stable Shareholders (HLD_SQR) has a significant negative effect on Bank Risk Taking (RSK).

Credibility, Reputation and De-Risking in Global Banking: Evidence from a Theoretical Model

This paper investigates the de-risking phenomenon from the perspective of an international bank’s decision to de-risk in a foreign market, where there is asymmetric information and costly monitoring. We consider three adverse shocks to a foreign affiliate’s (i) perceived credibility, (ii) costs of monitoring, and (iii) reputation, as reflected in a loss of franchise value. We show that the headquarters’ incentives to reduce international exposures are prompted by increasing funding and monitoring costs and by falling franchise values. Distortions arise because adverse credibility shocks make funding rates less responsive to actual risk choices, and impairments in the bank’s reputation negatively affect franchise values. All else equal, this reduces the bank’s incentives to retain and monitor the foreign affiliate, and risks increase. The risk effects are most pronounced in the case of credibility shocks, and incentives to reduce international exposures are strongest when reputational risks affect headquarters.

Corporate Financing and Firm Efficiency: A Data Envelopment Analysis Approach

This study investigates the endogenous determination of firm efficiency and leverage while testing the competing hypotheses of agency cost, efficiency-risk and franchise-value, in a sample of 136 non-financial firms listed on the Pakistan Stock Exchange (PSX), over the period 2002 to 2012. Data Envelopment Analysis (DEA) method is employed to measure firm efficiency as proxy for firm performance. The endogenous nature of firm efficiency and leverage allowed using two-stage least square (2SLS) technique. The findings of the efficiency equation suggest that leverage has a significant positive effect on firm efficiency. Additionally, firm risk, growth rate, size, board size and board composition positively affect firm efficiency. On the other hand, the results of the leverage equation suggest that firm efficiency has a significant negative effect on leverage. Firm size and CEO duality have positive effects on leverage while firm age, board composition, institutional ownership, managerial ownership and asset tangibility have negative effects on leverage. Generally, the results support agency cost and franchise-value hypotheses that higher leverage improves firm efficiency while higher firm efficiency results in reduced leverage. Keywords: Leverage, Firm Efficiency, Capital Structure, Firm Performance, Data Envelopment Analysis

BAILOUTS, FRANCHISE VALUE AND MORAL HAZARD IN BANKING

Policy discussions are dominated by the view that governmental safety nets offered to banks cause moral hazard and encourage risk-taking. However, [Cordella, T and E Levy Yeyati (2003). Bank bailouts: moral hazard vs. value effect. Journal of Financial Intermediation, 12, 300–330.] proposed that government support offered during crises may increase bank franchise value, resulting in less risk-taking. This paper presents additional theoretical results on the franchise value effect. The franchise value effect can dominate over the moral hazard effect even when there are no specific crisis periods. The franchise value effect dominates if bank shareholders have a weak time preference and if the decision on the intensity of risk monitoring is a long-term choice.

Effect of Earnings Per Shares on Capital Structure Choice of Listed Non-Financial Firms in Nigeria

The main objective of this paper is to examine the effect of financial performance on capital structure of listed non-financial firms in Nigeria. This was guided by assessing the earnings per share on capital structure choice. The causal research design was adopted while a total of 87 samples was included in the study. The estimated results are statistically significant at all levels of Capital Structure. Based on the significance of these results it was concluded that both the efficiency risk and franchise value hypotheses of the reverse causality hypothesis are observable in the capital structure choice of the firms.

When Gambling for Resurrection is Too Risky

Rather than taking on more risk, US insurers hit hard by the crisis pulled back from risk taking, relative to insurers not hit as hard by the crisis. Capital requirements alone do not explain this risk reduction: insurers hit hard reduced risk within assets with identical regulatory treatment. State level US insurance regulation makes it unlikely this risk reduction was driven by moral suasion. Other financial institutions also reduce risk after large shocks: the same approach applied to banks yields similar results. My results suggest that, at least in some circumstances, franchise value can dominate, making gambling for resurrection too risky.