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Deposit Insurance, Corporate Governance and Discretionary Behavior: Evidence from Thai Financial Institutions

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  • Anuchitworawong, Chaiyasit
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    Abstract

    Claiming that the implicit cost of deposit insurance is an alternative proxy for risk-taking behavior, we examine the effects of incentive-inducing ownership and entrenchment of the largest shareholders and discretionary behavior of the management on the risk of Thai financial institutions. Our empirical results suggest that, during 1994-1996, the largest shareholders engage in low risk-taking activities when they hold large cash flow rights and have low deviation of cash flow from control rights. However, the risk is higher when the largest family shareholder enters the board and when Chairman-CEO can manipulate loan loss provisions. After the financial crisis, earnings management through discretion on loan loss provisions reduces risk. Overall, this study suggests that the problems underlying the implicit guarantee scheme are different between banks and finance companies, and between types of governance structure.

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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/13907/1/wp2004-15a.pdf
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    Bibliographic Info

    Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2004-15.

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    Length: 43 p.
    Date of creation: Sep 2004
    Date of revision:
    Handle: RePEc:hit:hitcei:2004-15

    Note: July 2004
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    Related research

    Keywords: Implicit guarantee; Risk; Ownership Structure; Managerial Discretion; Thai Financial Institutions;

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    1. Demirguc-Kunt, Asli & Huizinga, Harry, 1999. "Market Discipline and Financial Safety Net Design," CEPR Discussion Papers 2311, C.E.P.R. Discussion Papers.
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    Cited by:
    1. Pathan, Shams & Skully, Michael & Wickramanayake, J., 2008. "Reforms in Thai bank governance: The aftermath of the Asian financial crisis," International Review of Financial Analysis, Elsevier, vol. 17(2), pages 345-362.

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