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Determinants of off-balance sheet usage in private banks

  • Elizabeth W. Cooper
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    Purpose – The purpose of this paper is to analyze the off-balance sheet (OBS) behavior of a sample of small commercial banks in the USA in 2006. In particular, it aims to study the impact that monitoring intensity has on bank OBS usage. Design/methodology/approach – The paper uses a two-stage least squares regression methodology and splits the sample by supervisory bank ratings to ascertain the impact that monitoring intensity has on OBS activity. Findings – Certain board characteristics and executive compensation schemes do influence the extent of OBS usage in banks only when the bank is poorly rated. When the bank is strong and monitoring is less extreme, these variables have limited relationship with OBS usage. Research limitations/implications – Findings are consistent with the idea that monitoring intensity increases when ratings decline and this leads to more risk-averse behavior on the part of bank managers. Practical implications – These results lend support to the argument of stronger regulation in the banking industry since monitoring does impact on bank management behavior and decision making. Originality/value – Because of the current financial crisis, research on OBS usage is extremely relevant and important. Here, the paper looks at small private commercial banks that engage in OBS activity. This phenomenon is not as well studied or understood.

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    File URL: http://www.emeraldinsight.com/journals.htm?issn=1086-7376&volume=28&issue=4&articleid=1954323&show=abstract
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    Article provided by Emerald Group Publishing in its journal Studies in Economics and Finance.

    Volume (Year): 28 (2011)
    Issue (Month): 4 (October)
    Pages: 248-259

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    Handle: RePEc:eme:sefpps:v:28:y:2011:i:4:p:248-259
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    1. Michael C. Jensen, 1994. "The Modern Industrial Revolution, Exit, And The Failure Of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 6(4), pages 4-23.
    2. Baker, Malcolm & Gompers, Paul A, 2003. "The Determinants of Board Structure at the Initial Public Offering," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 569-98, October.
    3. Chandra S. Mishra & James F. Nielsen, 2000. "Board Independence and Compensation Policies in Large Bank Holding Companies," Financial Management, Financial Management Association, vol. 29(3), Fall.
    4. Brent Ambrose & Michael LaCour-Little & Anthony Sanders, 2005. "Does Regulatory Capital Arbitrage, Reputation, or Asymmetric Information Drive Securitization?," Journal of Financial Services Research, Springer, vol. 28(1), pages 113-133, October.
    5. Kose John & Hamid Mehran & Yiming Qian, 2007. "Regulation, subordinated debt, and incentive features of CEO compensation in the banking industry," Staff Reports 308, Federal Reserve Bank of New York.
    6. Hatice Uzun & Elizabeth Webb, 2007. "Securitization and risk: empirical evidence on US banks," Journal of Risk Finance, Emerald Group Publishing, vol. 8(1), pages 11-23, January.
    7. John Byrd & Elizabeth S. Cooperman & Glenn A. Wolfe, 2010. "Director tenure and the compensation of bank CEOs," Managerial Finance, Emerald Group Publishing, vol. 36(2), pages 86-102, February.
    8. G. Dionne & T. M. Harchaoui, 2002. "Banks’ Capital, Securitization and Credit Risk : An Empirical Evidence for Canada," THEMA Working Papers 2002-33, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    9. Gregory Sierra & Eli Talmor & James Wallace, 2006. "An Examination of Multiple Governance Forces within Bank Holding Companies," Journal of Financial Services Research, Springer, vol. 29(2), pages 105-123, April.
    10. Simon H. Kwan, 2004. "Risk and return of publicly held versus privately owned banks," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 97-107.
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