Advanced Search
MyIDEAS: Login to save this article or follow this journal

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

Contents:

Author Info

  • Forssbæck, Jens
Registered author(s):

    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.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/pii/S0378426611000951
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

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

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

    as in new window
    Handle: RePEc:eee:jbfina:v:35:y:2011:i:10:p:2666-2678

    Contact details of provider:
    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Bank risk Market discipline Ownership structure Deposit insurance;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Demirguc-Kunt, Asli & Karacaovali, Baybars & Laeven, Luc, 2005. "Deposit insurance around the world : a comprehensive database," Policy Research Working Paper Series 3628, The World Bank.
    2. Asli Demirguc-Kunt & Enrica Detragiache, 2000. "Does Deposit Insurance Increase Banking System Stability? An Empirical Investigation," Econometric Society World Congress 2000 Contributed Papers 1751, Econometric Society.
    3. Shehzad, Choudhry Tanveer & de Haan, Jakob & Scholtens, Bert, 2010. "The impact of bank ownership concentration on impaired loans and capital adequacy," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(2), pages 399-408, February.
    4. Maria Soledad Martinez Peria, 2001. "Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises," Journal of Finance, American Finance Association, American Finance Association, vol. 56(3), pages 1029-1051, 06.
    5. Gorton, Gary & Rosen, Richard, 1995. " Corporate Control, Portfolio Choice, and the Decline of Banking," Journal of Finance, American Finance Association, American Finance Association, vol. 50(5), pages 1377-1420, December.
    6. Luc Laeven & Ross Levine, 2008. "Bank Governance, Regulation, and Risk Taking," NBER Working Papers 14113, National Bureau of Economic Research, Inc.
    7. A. Sinan Cebenoyan & Elizabeth S. Cooperman & Charles A. Register, 1999. "Ownership Structure, Charter Value, and Risk-Taking Behavior for Thrifts," Financial Management, Financial Management Association, Financial Management Association, vol. 28(1), Spring.
    8. Foos, Daniel & Norden, Lars & Weber, Martin, 2010. "Loan growth and riskiness of banks," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(12), pages 2929-2940, December.
    9. Keeley, Michael C, 1990. "Deposit Insurance, Risk, and Market Power in Banking," American Economic Review, American Economic Association, American Economic Association, vol. 80(5), pages 1183-1200, December.
    10. Armen Hovakimian & Edward Kane & Luc Laeven, 2003. "How Country and Safety-Net Characteristics Affect Bank Risk-Shifting," Journal of Financial Services Research, Springer, Springer, vol. 23(3), pages 177-204, June.
    11. Crouzille, Celine & Lepetit, Laetitia & Tarazi, Amine, 2004. "Bank stock volatility, news and asymmetric information in banking: an empirical investigation," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 14(4-5), pages 443-461.
    12. Barth, James R. & Caprio Jr, Gerard & Levine, Ross, 2001. "The regulation and supervision of banks around the world - a new database," Policy Research Working Paper Series 2588, The World Bank.
    13. Cook, Douglas O & Spellman, Lewis J, 1994. "Repudiation Risk and Restitution Costs: Toward Understanding Premiums on Insured Deposits," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 26(3), pages 439-59, August.
    14. K.J. Martijn Cremers & Vinay B. Nair & Chenyang Wei, 2007. "Governance Mechanisms and Bond Prices," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 20(5), pages 1359-1388, 2007 07.
    15. Saunders, Anthony & Strock, Elizabeth & Travlos, Nickolaos G, 1990. " Ownership Structure, Deregulation, and Bank Risk Taking," Journal of Finance, American Finance Association, American Finance Association, vol. 45(2), pages 643-54, June.
    16. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(4), pages 305-360, October.
    17. Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, Elsevier, vol. 51(2), pages 375-399, March.
    18. Knopf, John D. & Teall, John L., 1996. "Risk-taking behavior in the U.S. thrift industry: Ownership structure and regulatory changes," Journal of Banking & Finance, Elsevier, Elsevier, vol. 20(8), pages 1329-1350, September.
    19. Daniel M. Covitz & Diana Hancock & Myron L. Kwast, 2004. "A reconsideration of the risk sensitivity of U.S. banking organization subordinated debt spreads: a sample selection approach," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Sep, pages 73-92.
    20. Luc Laeven, 2002. "Bank Risk and Deposit Insurance," World Bank Economic Review, World Bank Group, World Bank Group, vol. 16(1), pages 109-137, June.
    21. Mark Flannery, 2001. "The Faces of “Market Discipline”," Journal of Financial Services Research, Springer, Springer, vol. 20(2), pages 107-119, October.
    22. Gropp, Reint & Vesala, Jukka, 2004. "Deposit insurance, moral hazard and market monitoring," Working Paper Series, European Central Bank 0302, European Central Bank.
    23. Hwang, Dar-Yeh & Shie, Fu-Shuen & Wang, Kehluh & Lin, Jung-Chu, 2009. "The pricing of deposit insurance considering bankruptcy costs and closure policies," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(10), pages 1909-1919, October.
    24. Harald Benink & Clas Wihlborg, 2002. "The New Basel Capital Accord: Making it Effective with Stronger Market Discipline," European Financial Management, European Financial Management Association, European Financial Management Association, vol. 8(1), pages 103-115.
    25. Boubakri, Narjess & Ghouma, Hatem, 2010. "Control/ownership structure, creditor rights protection, and the cost of debt financing: International evidence," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(10), pages 2481-2499, October.
    26. Boyd, John H. & Graham, Stanley L. & Hewitt, R. Shawn, 1993. "Bank holding company mergers with nonbank financial firms: Effects on the risk of failure," Journal of Banking & Finance, Elsevier, Elsevier, vol. 17(1), pages 43-63, February.
    27. Besanko, David & Kanatas, George, 1996. "The Regulation of Bank Capital: Do Capital Standards Promote Bank Safety?," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 5(2), pages 160-183, April.
    28. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Pejman Abedifar & Philip Molyneux & Amine Tarazi, 2013. "Risk in Islamic Banking," Review of Finance, European Finance Association, European Finance Association, vol. 17(6), pages 2035-2096.
    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.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:35:y:2011:i:10:p:2666-2678. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.