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Activity Strategies, Agency Problems, and Bank Risk

Author

Listed:
  • Tran Dung
  • M. Kabir Hassan
  • Isabelle Girerd-Potin

    (CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes)

  • Pascal Louvet

    (CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes)

Abstract

We investigate whether diversification affects bank risk taking in the U.S. banking industry, and whether this relation is partially explained by agency theory. Our results show that U.S. banks with a relatively high share of noninterest income become riskier when moving toward non‐interest‐income‐generating activities, especially activities from investment banking, proprietary trading, and so on. Diversification not only affects conditional average risk, but also the dispersion of risk. Moreover, diversified banks that received assistance from the Troubled Asset Relief Program (TARP) become riskier than diversified nonrecipients after TARP capital injections. Our main findings are robust to a battery of robustness tests. The results are partially explained under agency frameworks related to poor corporate governance.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Tran Dung & M. Kabir Hassan & Isabelle Girerd-Potin & Pascal Louvet, 2020. "Activity Strategies, Agency Problems, and Bank Risk," Post-Print hal-04809862, HAL.
    • Handle: RePEc:hal:journl:hal-04809862
    DOI: 10.1111/jfir.12216
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    Cited by:

    1. Daniel Ofori-Sasu & Gloria Clarissa Dzeha & Vera Ogeh Fiador & Joshua Yindenaba Abor, 2023. "Dividend policy framework and bank risk-taking in Africa: do women inclusion in governance system offer new insight?," Future Business Journal, Springer, vol. 9(1), pages 1-17, December.
    2. Tran, Dung Viet & Nguyen, Cuong, 2023. "Policy uncertainty and bank’s funding costs: The effects of the financial crisis, Covid-19 pandemic, and market discipline," Research in International Business and Finance, Elsevier, vol. 65(C).
    3. Huong Dao Thi & Theanh Nguyen, 2024. "Bank-Specific Factors Influencing the Profitability of Listed Commercial Banks in Vietnam," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 16(2), pages 469-488.
    4. Efstathios Polyzos & Aristeidis Samitas & Ghulame Rubbaniy, 2024. "The perfect bail‐in: Financing without banks using peer‐to‐peer lending," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3393-3412, July.
    5. Tran, Dung Viet & Hassan, M. Kabir & AlTalafha, Sarah H. & Turunen-Red, Arja, 2021. "Policy uncertainty, the use of derivatives: Evidence from U.S. bank holdingcompanies (BHCs)," Research in International Business and Finance, Elsevier, vol. 58(C).
    6. Thi Nhu Quynh Nguyen & Duc Trung Nguyen & Hoang Anh Le & Dinh Luan Le, 2022. "Corporate Governance and Financial Stability: The Case of Commercial Banks in Vietnam," JRFM, MDPI, vol. 15(11), pages 1-16, November.
    7. Tran, Dung Viet & Hassan, M. Kabir & Alam, Ahmed W. & Pezzo, Luca & Abdul-Majid, Mariani, 2021. "Economic policy uncertainty, agency problem, and funding structure: Evidence from U.S. banking industry," Research in International Business and Finance, Elsevier, vol. 58(C).

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