IDEAS home Printed from https://ideas.repec.org/a/wsi/rpbfmp/v19y2016i04ns0219091516500247.html
   My bibliography  Save this article

Do Well-Financial Holding Company Organized Banks in Taiwan Take More Risk?

Author

Listed:
  • Li-Hua Lai

    () (Department of Risk Management and Insurance, National Kaohsiung First University of Science and Technology, Kaohsiung, Taiwan)

  • Li-Chin Hung

    (Graduate School of College of Finance and Banking, National Kaohsiung First University of Science and Technology, Kaohsiung, Taiwan)

  • Chau-Jung Kuo

    () (Department of Finance, National Sun Yat-sen University, Kaohsiung, Taiwan)

Abstract

This paper employs panel data regression analysis to explore the measurable differences in risk-capitalization relationship between FHC and non-FHC organized Banks. The main contribution of this paper is in explaining some rethinking which shows the business of FHCBs take more risk than that of NFHCBs, and high degree of capitalization is negatively associated with asset risk and has higher interest rate spread increased bank’s asset risk in FHCBs only. It obviously has its strong anti-incentives domination for high capital banks group in NFHCHs, which a high degree of loans ratio, loans ratio is positively associated with asset risk in NFHCBs only. A large degree of bank size, bank size is negatively associated with asset risk in FHCBs only. The prior studies and previous hypothesis indicate that risk level increases when the bank capital size is high but the finding in this paper is inconsistent with the previous research.

Suggested Citation

  • 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.
  • Handle: RePEc:wsi:rpbfmp:v:19:y:2016:i:04:n:s0219091516500247
    DOI: 10.1142/S0219091516500247
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0219091516500247
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Keeley, Michael C. & Furlong, Frederick T., 1990. "A reexamination of mean-variance analysis of bank capital regulation," Journal of Banking & Finance, Elsevier, vol. 14(1), pages 69-84, March.
    2. Hsiang-Hsi Liu & Tser-Yieth Chen & Jia-Wen Chen, 2013. "Incorporating the Credit Ranking Measure to Evaluate the Operating Efficiency of Financial Holding Companies in Taiwan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(10), pages 1386-1404, October.
    3. Blackwell, David W. & Brickley, James A. & Weisback, Michael S., 1994. "Accounting information and internal performance evaluation : Evidence from Texas banks," Journal of Accounting and Economics, Elsevier, vol. 17(3), pages 331-358, May.
    4. Yung-Ho Chiu & Chyanlong Jan & Da-Bai Shen & Pen-Chun Wang, 2008. "Efficiency and capital adequacy in Taiwan banking: BCC and super-DEA estimation," The Service Industries Journal, Taylor & Francis Journals, vol. 28(4), pages 479-496, May.
    5. Frederic S. Mishkin, 2006. "How Big a Problem is Too Big to Fail? A Review of Gary Stern and Ron Feldman's Too Big to Fail: The Hazards of Bank Bailouts," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 988-1004, December.
    6. Ta‐Cheng Chang & Yung‐Ho Chiu, 2006. "Affecting Factors On Risk‐Adjusted Efficiency In Taiwan'S Banking Industry," Contemporary Economic Policy, Western Economic Association International, vol. 24(4), pages 634-648, October.
    7. Berger, Allen N. & DeYoung, Robert, 1997. "Problem loans and cost efficiency in commercial banks," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 849-870, June.
    8. Pathan, Shams, 2009. "Strong boards, CEO power and bank risk-taking," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1340-1350, July.
    9. Darius Palia & Robert Porter, 2004. "The Impact of Capital Requirements and Managerial Compensation on Bank Charter Value," Review of Quantitative Finance and Accounting, Springer, vol. 23(3), pages 191-206, November.
    10. Lobo, Gerald J & Yang, Dong-Hoon, 2001. "Bank Managers' Heterogeneous Decisions on Discretionary Loan Loss Provisions," Review of Quantitative Finance and Accounting, Springer, vol. 16(3), pages 223-250, May.
    11. Meng-Chun Kao & Chien-Ting Lin & Lei Xu, 2012. "Do Financial Reforms Improve the Performance of Financial Holding Companies? The Case of T aiwan," International Review of Finance, International Review of Finance Ltd., vol. 12(4), pages 491-509, December.
    12. Gorton, Gary & Rosen, Richard, 1995. " Corporate Control, Portfolio Choice, and the Decline of Banking," Journal of Finance, American Finance Association, vol. 50(5), pages 1377-1420, December.
    13. Saunders, Anthony & Strock, Elizabeth & Travlos, Nickolaos G, 1990. " Ownership Structure, Deregulation, and Bank Risk Taking," Journal of Finance, American Finance Association, vol. 45(2), pages 643-654, June.
    14. Chen, Pei-Fen & Liu, Ping-Chin, 2013. "Bank ownership, performance, and the politics: Evidence from Taiwan," Economic Modelling, Elsevier, vol. 31(C), pages 578-585.
    15. Chau-Jung Kuo & Su-Lien Lu, 2005. "Taiwan's financial holding companies: an empirical investigation based on Markov regime-switching model," Applied Economics, Taylor & Francis Journals, vol. 37(5), pages 593-605.
    16. Rime, Bertrand, 2001. "Capital requirements and bank behaviour: Empirical evidence for Switzerland," Journal of Banking & Finance, Elsevier, vol. 25(4), pages 789-805, April.
    17. Chung‐Hua Shen & Yuan Chang, 2012. "To Join Or Not To Join? Do Banks That Are Part Of A Financial Holding Company Perform Better Than Banks That Are Not?," Contemporary Economic Policy, Western Economic Association International, vol. 30(1), pages 113-128, January.
    18. Matthew C. Chang & Chien-Chung Nieh & Ya-Hui Peng, 2011. "Are Bigger Banks More Profitable than Smaller Banks?," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 1(3), pages 1-4.
    19. Wen-Chung Guo & Chih-Ching Yang, 2013. "Are bank mergers procyclical or countercyclical? Theory and evidence from Taiwan," Applied Financial Economics, Taylor & Francis Journals, vol. 23(1), pages 1-14, January.
    20. Avery, Robert B. & Berger, Allen N., 1991. "Risk-based capital and deposit insurance reform," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 847-874, September.
    21. Santomero, Anthony M. & Vinso, Joseph D., 1977. "Estimating the probability of failure for commercial banks and the banking system," Journal of Banking & Finance, Elsevier, vol. 1(2), pages 185-205, October.
    22. Nissim, Doron, 2003. "Reliability of Banks' Fair Value Disclosure for Loans," Review of Quantitative Finance and Accounting, Springer, vol. 20(4), pages 355-384, June.
    23. George Sheldon, 1995. "A Limit-Risk Capital Adequacy Rule: An Alternative Approach to Capital Adequacy Regulation for Banks with an Empirical Application to Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 131(IV), pages 773-805, December.
    24. Yu, Peiyi & Van Luu, Bac, 2003. "Banking Mergers: The Impact of Financial Liberalization on the Taiwanese Banking Industry," Review of Quantitative Finance and Accounting, Springer, vol. 20(4), pages 385-413, June.
    25. van Damme, E.E.C., 2002. "Economische analyse van politieke processen," Other publications TiSEM 54188f86-501c-4808-b802-1, Tilburg University, School of Economics and Management.
    26. Hwang, Dar-Yeh & Lin, Jung-Chu & Lin, Ching-Chung, 2003. "A Study on Designing a Financial Supervisory Institution in Taiwan," Review of Quantitative Finance and Accounting, Springer, vol. 20(1), pages 81-106, January.
    27. Demsetz, Rebecca S & Strahan, Philip E, 1997. "Diversification, Size, and Risk at Bank Holding Companies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 300-313, August.
    28. Kim, Se-Jik, 2004. "Bailout and conglomeration," Journal of Financial Economics, Elsevier, vol. 71(2), pages 315-347, February.
    29. Jane‐Sue Wang & Jing‐Twen Chen & Pin‐Huang Chou, 2008. "Market Reactions To The Passage Of The Financial Holding Company Act In Taiwan," Pacific Economic Review, Wiley Blackwell, vol. 13(4), pages 453-472, October.
    30. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004. "Bank regulation and supervision: what works best?," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 205-248, April.
    31. Das, Abhiman & Ghosh, Saibal, 2006. "Financial deregulation and efficiency: An empirical analysis of Indian banks during the post reform period," Review of Financial Economics, Elsevier, vol. 15(3), pages 193-221.
    32. Fotios Pasiouras, 2008. "International evidence on the impact of regulations and supervision on banks’ technical efficiency: an application of two-stage data envelopment analysis," Review of Quantitative Finance and Accounting, Springer, vol. 30(2), pages 187-223, February.
    33. Mohanty, Sunil K. & Lin, Winston T. & Lin, Hong-Jen, 2013. "Measuring cost efficiency in presence of heteroskedasticity: The case of the banking industry in Taiwan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 77-90.
    34. Chen, Ku-Hsieh, 2012. "Incorporating risk input into the analysis of bank productivity: Application to the Taiwanese banking industry," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 1911-1927.
    35. Cliff Huang & Tsu-Tan Fu, 2009. "Uncertainty and total factor productivity in the Taiwanese banking industry," Applied Financial Economics, Taylor & Francis Journals, vol. 19(9), pages 753-766.
    36. Jeitschko, Thomas D. & Jeung, Shin Dong, 2005. "Incentives for risk-taking in banking - A unified approach," Journal of Banking & Finance, Elsevier, vol. 29(3), pages 759-777, March.
    37. Furlong, Frederick T. & Keeley, Michael C., 1989. "Capital regulation and bank risk-taking: A note," Journal of Banking & Finance, Elsevier, vol. 13(6), pages 883-891, December.
    38. Allen N. Berger & Robert DeYoung, "undated". "Problem Loans and Cost Efficiency in Commercial Banks," Finance and Economics Discussion Series 1997-08, Board of Governors of the Federal Reserve System (U.S.), revised 10 Dec 2019.
    39. Asokan Anandarajan & Bill Francis & Iftekhar Hasan & Kose John, 2011. "Value relevance of banks: global evidence," Review of Quantitative Finance and Accounting, Springer, vol. 36(1), pages 33-55, January.
    40. Tser-Yieth Chen, 2004. "A study of cost efficiency and privatisation in Taiwan's banks: the impact of the Asian financial crisis," The Service Industries Journal, Taylor & Francis Journals, vol. 24(5), pages 137-151, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Arthur Jin Lin & Hai-Yen Chang, 2019. "Business Sustainability Performance Evaluation for Taiwanese Banks—A Hybrid Multiple-Criteria Decision-Making Approach," Sustainability, MDPI, Open Access Journal, vol. 11(8), pages 1-26, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:rpbfmp:v:19:y:2016:i:04:n:s0219091516500247. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim). General contact details of provider: http://www.worldscinet.com/rpbfmp/rpbfmp.shtml .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.