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Charter Value and Risk-taking: Evidence from Indian Banks

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  • Saibal, Ghosh

Abstract

The article examines the determinants of banks’ charter value and its disciplining effect on bank risk-taking since the mid-1990s. The analysis indicates that deposit and loan market concentration exert a significant effect on charter value, suggestive of a strong link between competition and charter value. Among the traditional banking activities, bank size and efficiency are found to be important determinants of charter value. The disciplining effect of charter value is robust across several measures on bank risk.

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File URL: http://mpra.ub.uni-muenchen.de/19543/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19543.

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Date of creation: 01 Aug 2009
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Publication status: Published in Journal of the Asia Pacific Economy 3.14(2009): pp. 270-286
Handle: RePEc:pra:mprapa:19543

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Keywords: banking; charter value; risk-taking; capital buffer; prudential regulation; India;

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References

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  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  2. Reint Gropp & Jukka Vesala, 2002. "Deposit insurance, moral hazard, and market monitoring," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 75-107.
  3. Petersen, Mitchell A & Rajan, Raghuram G, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 407-43, May.
  4. Goldberg, Lawrence G. & Hudgins, Sylvia C., 2002. "Depositor discipline and changing strategies for regulating thrift institutions," Journal of Financial Economics, Elsevier, vol. 63(2), pages 263-274, February.
  5. Park, Sangkyun & Peristiani, Stavros, 1998. "Market Discipline by Thrift Depositors," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 347-64, August.
  6. Galloway, Tina M. & Lee, Winson B. & Roden, Dianne M., 1997. "Banks' changing incentives and opportunities for risk taking," Journal of Banking & Finance, Elsevier, vol. 21(4), pages 509-527, April.
  7. Allen N. Berger & Robert DeYoung, 1997. "Problem loans and cost efficiency in commercial banks," Finance and Economics Discussion Series 1997-8, Board of Governors of the Federal Reserve System (U.S.).
  8. Beck, Thorsten & Laeven, Luc, 2006. "Resolution of failed banks by deposit insurers : cross-country evidence," Policy Research Working Paper Series 3920, The World Bank.
  9. Barbara Casu & Philip Molyneux, 2003. "A comparative study of efficiency in European banking," Applied Economics, Taylor and Francis Journals, vol. 35(17), pages 1865-1876.
  10. Rebecca S. Demsetz & Marc R. Saidenberg & Philip E. Strahan, 1996. "Banks with something to lose: the disciplinary role of franchise value," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 1-14.
  11. Ergungor, O. Emre, 2004. "Market- vs. bank-based financial systems: Do rights and regulations really matter?," Journal of Banking & Finance, Elsevier, vol. 28(12), pages 2869-2887, December.
  12. Saibal Ghosh, 2009. "Bank risk, charter value and depositor discipline: a simultaneous equations approach," Applied Economics Letters, Taylor and Francis Journals, vol. 16(6), pages 639-644.
  13. Gianni De Nicolo, 2000. "Size, charter value and risk in banking: an international perspective," International Finance Discussion Papers 689, Board of Governors of the Federal Reserve System (U.S.).
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Cited by:
  1. Udhayakumar, A. & Charles, V. & Kumar, Mukesh, 2011. "Stochastic simulation based genetic algorithm for chance constrained data envelopment analysis problems," Omega, Elsevier, vol. 39(4), pages 387-397, August.

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