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A Cross-Country Assessment of Bank Risk-Shifting Behavior

Author

Listed:
  • James R. Barth

    (Department of Finance, Auburn University, 303 Lowder Business Building, Auburn University, AL 36849, USA)

  • Mark Bertus

    (Department of Finance, Auburn University, 303 Lowder Business Building, Auburn University, AL 36849, USA)

  • Jiang Hai

    (Department of Finance, Jinan University, Guangzhou, 510632, China)

  • Triphon Phumiwasana

    (Milken Institute, 1250 Fourth St., Santa Monica, CA 90401, USA)

Abstract

Banks are important for mobilizing savings and then channeling those funds to productive investment projects. While providing these and other services that contribute to economic growth and development, banks take on various types of risks with the expectation that the return they receive will compensate for the risks. This paper presents a simple model and tests the extent to which information asymmetry between bank owners and depositors induces risk-shifting behavior that allows for higher bank net interest margins. The empirical results support the hypothesis that the greater the degree of information asymmetry the higher net interest margins base upon a sample of 3,115 banks in 98 countries.

Suggested Citation

  • James R. Barth & Mark Bertus & Jiang Hai & Triphon Phumiwasana, 2008. "A Cross-Country Assessment of Bank Risk-Shifting Behavior," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 1-34.
    • Handle: RePEc:wsi:rpbfmp:v:11:y:2008:i:01:n:s0219091508001234
    DOI: 10.1142/S0219091508001234
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    References listed on IDEAS

    as
    1. Tito Cordella & Eduardo Levy Yeyati, 1998. "Public Disclosure and Bank Failures," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 110-131, March.
    2. Barth,James R. & Caprio,Gerard & Levine,Ross, 2008. "Rethinking Bank Regulation," Cambridge Books, Cambridge University Press, number 9780521709309.
    3. repec:zbw:bofrdp:2003_021 is not listed on IDEAS
    4. John S. Jordan & Joe Peek & Eric Rosengren, 1999. "Impact of greater bank disclosure amidst a banking crisis," Working Papers 99-1, Federal Reserve Bank of Boston.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Li-Hua Lai & Li-Chin Hung & Chau-Jung Kuo, 2016. "Do Well-Financial Holding Company Organized Banks in Taiwan Take More Risk?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(04), pages 1-30, December.
    2. Sophia I-Ling Wang, 2018. "Bank External Financing and Early Adoption of SFAS 133," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 21(03), pages 1-40, September.
    3. Jason West, 2015. "Capital valuation and sustainability: a data programming approach," Review of Quantitative Finance and Accounting, Springer, vol. 45(3), pages 591-608, October.

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    More about this item

    Keywords

    Banking; financial institutions; regulation and risk;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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