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Does economic freedom matter for risk-taking? Evidence from MENA banks

Author

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  • Saibal Ghosh

Abstract

Purpose - The relevance of economic freedom in influencing bank risk taking has not been adequately addressed in the literature. In this connection, employing bank-level data for 2000-2012, the purpose of this paper is to examine the impact of economic freedom on risk taking by MENA banks. Design/methodology/approach - Given the cross-sectional time-series nature of the data, the author employs panel data techniques to explore this issue. In addition, the author examines the robustness of the results using instrumental variable techniques. Findings - The findings appear to suggest that economic freedom exerts a significant and non-negligible impact on bank risk taking. Among the sub-components of economic freedom, it is observed that higher levels of both business and monetary freedom increase variability of profits and, thereby, raise the risk appetite of banks. Risk taking by banks appears to be reliably lower after the crisis than in the period prior to it, although there was a substantial increase in bank risk taking during the crisis. Originality/value - To the best of the author’s knowledge, this is one of the earliest studies to explore the interlinkage between economic freedom and bank risk taking for MENA banks.

Suggested Citation

  • Saibal Ghosh, 2016. "Does economic freedom matter for risk-taking? Evidence from MENA banks," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 8(2), pages 114-136, November.
    • Handle: RePEc:eme:rbfpps:rbf-01-2015-0002
    DOI: 10.1108/RBF-01-2015-0002
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    Citations

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    Cited by:

    1. ABBAS Faisal, 2021. "Impact Of Investment, Financial And Trade Freedom On Bank’S Risk-Taking," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 16(3), pages 5-23, December.
    2. Mavrakana, Christina & Psillaki, Maria, 2019. "Do economic freedom and board structure matter for bank stability and bank performance?," MPRA Paper 95709, University Library of Munich, Germany.
    3. Seza Danışoğlu & Z. Nuray Güner & Hande Ayaydın Hacıömeroğlu, 2018. "International Evidence on Risk Taking by Banks Around the Global Financial Crisis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(9), pages 1946-1962, July.
    4. Faisal Abbas & Shoaib Ali, 2022. "Is Economic Freedom a Moderator of the Relationship Between Bank Capital and Profitability?," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 69(2), pages 273-292, June.
    5. Louhichi, Awatef & Boujelbene, Younes, 2020. "Credit risk pricing and the rationality of lending decision-making within dual banking systems: A parametric approach," Economic Systems, Elsevier, vol. 44(1).

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