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Ownership structure, market discipline, and banks' risk-taking incentives under deposit insurance

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  • Forssbæck, Jens
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    Abstract

    The paper studies the effects of market discipline by creditors and ownership structure on banks' risk taking in the presence of partial deposit insurance. An agency-cost model explains how the effects of creditor discipline and shareholder control are interdependent, the non-monotonic effect of shareholder control, and the role of leverage. Panel regressions on several hundred banks worldwide 1995-2005 confirm a negative individual risk effect of creditor discipline and the expected convex effect of shareholder control. Increased shareholder control significantly strengthens the negative effect of market discipline on asset risk, but joint effects on overall default risk are limited.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 35 (2011)
    Issue (Month): 10 (October)
    Pages: 2666-2678

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    Handle: RePEc:eee:jbfina:v:35:y:2011:i:10:p:2666-2678

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Bank risk Market discipline Ownership structure Deposit insurance;

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    Cited by:
    1. Pejman Abedifar & Philip Molyneux & Amine Tarazi, 2012. "Risk in Islamic Banking," Working Papers hal-00915115, HAL.
    2. Luís Brandão Marques & Ricardo Correa & Horacio Sapriza, 2013. "International Evidence on Government Support and Risk Taking in the Banking Sector," IMF Working Papers 13/94, International Monetary Fund.
    3. Bowo Setiyono & Amine Tarazi, 2014. "Disclosure, ownership structure and bank risk: Evidence from Asia," Working Papers hal-00947590, HAL.

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