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How does institutional development shape bank risk-taking incentives in the context of financial openness?

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  • Bui, Duy Tung
  • Bui, Thi Mai Hoai

Abstract

This paper investigates the role of institutional development on the relationship between financial openness and bank risk-taking behavior. In particular, we investigate how institutional improvement can change the impact of financial openness on bank stability. Using a panel of 37 emerging markets and 21 advanced economies over the period 2000–2015, the results show that opening the financial market affects bank risk-taking behaviors differently, depending on the degree of institutional development. Empirical evidence also supports the competition-fragility view in the case of developing countries, while it favors the competition-stability hypothesis in developed economies.

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  • Bui, Duy Tung & Bui, Thi Mai Hoai, 2019. "How does institutional development shape bank risk-taking incentives in the context of financial openness?," Pacific-Basin Finance Journal, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:pacfin:v:58:y:2019:i:c:s0927538x19301738
    DOI: 10.1016/j.pacfin.2019.101209
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    Cited by:

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    2. Shabir, Mohsin & Jiang, Ping & Bakhsh, Satar & Zhao, Zhongxiu, 2021. "Economic policy uncertainty and bank stability: Threshold effect of institutional quality and competition," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    3. Veríssimo, Pedro & de Carvalho, Paulo Viegas & Laureano, Luís, 2021. "Asymmetries in the Euro area banking profitability," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    4. Salma Louati & Younes Boujelbene, 2020. "Inflation targeting and bank risk: The interacting effect of institutional quality," Cogent Business & Management, Taylor & Francis Journals, vol. 7(1), pages 1847889-184, January.
    5. Mohammed Mizanur Rahman & Munni Begum & Badar Nadeem Ashraf & Md. Abdul Kaium Masud, 2020. "Does Trade Openness Affect Bank Risk-Taking Behavior? Evidence from BRICS Countries," Economies, MDPI, vol. 8(3), pages 1-30, September.
    6. Kassouri, Yacouba & Altıntaş, Halil & Bilgili, Faik, 2020. "An investigation of the financial resource curse hypothesis in oil-exporting countries: The threshold effect of democratic accountability," Journal of Multinational Financial Management, Elsevier, vol. 56(C).
    7. S K Gnangnon, 2023. "Effect of Aid for Trade on Financial Development," Economic Issues Journal Articles, Economic Issues, vol. 28(2), pages 1-38, September.
    8. Dutra, Tiago M. & Teixeira, João C.A. & Dias, José Carlos, 2023. "Banking regulation and banks’ risk-taking behavior: The role of investors’ protection," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 124-148.

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    More about this item

    Keywords

    Financial openness; Institutional development; Bank risk-taking;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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