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Non‐bank financial institutions regulation and risk‐taking

Author

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  • Isaac Ofoeda
  • Joshua Abor
  • Charles K.D. Adjasi

Abstract

Purpose - The purpose of this study is to examine the relationship between regulation of non‐bank financial institutions and their risk‐taking behaviours in Ghana. Design/methodology/approach - The analysis is performed using data derived from the Bank of Ghana Database during a five‐year period, 2006‐2010. Correlated Panels Corrected Standard Errors model is used to estimate the regression equation. Capital adequacy requirements and the restrictions on non‐bank financial institutions' (NBFIs') ability to take deposits are used as proxies for regulatory pressure. The study also used the ratio of risks weighted assets‐to‐total assets, the ratio of non‐performing loans‐to‐net loans and the Z‐scores of NBFIs as measures of risk. Findings - The results of the study show a negative relationship between minimum capital adequacy requirement and the risks weighted assets of NBFIs. This indicates that, asking NBFIs to keep higher minimum capital adequacy ratio results in reducing their risk‐taking. The results also indicate a positive relationship between regulatory pressure and risk weighted assets of NBFIs. The paper however found a negative relationship between restrictions on deposits and the risk of insolvency. The findings suggest that, non‐deposit‐taking NBFIs have higher risk weighted assets and are more prone to the risk of insolvency than deposit‐taking NBFIs. Originality/value - The value of this study is in respect of its contribution to the extant literature on financial regulation and risk‐taking of NBFIs.

Suggested Citation

  • Isaac Ofoeda & Joshua Abor & Charles K.D. Adjasi, 2012. "Non‐bank financial institutions regulation and risk‐taking," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 20(4), pages 433-450, November.
    • Handle: RePEc:eme:jfrcpp:v:20:y:2012:i:4:p:433-450
    DOI: 10.1108/13581981211279372
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    Citations

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    Cited by:

    1. Xiaoming He & Lin Cui & Klaus E. Meyer, 2022. "How state and market logics influence firm strategy from within and outside? Evidence from Chinese financial intermediary firms," Asia Pacific Journal of Management, Springer, vol. 39(2), pages 587-614, June.
    2. William WISE, 2018. "The importance of efficiency for life insurer profit: A study of Canadian life insurance companies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(4(617), W), pages 179-204, Winter.
    3. Eric Dei Ofosu-Hene & Peter Amoh, 2016. "Risk Management and Performance of Listed Banks in Ghana," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 2(2), pages 107-121.

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