Does the ownership structure matter for banks’ capital regulation and risk-taking behavior? Empirical evidence from a developing country

Zheng, Chao; Moudud‐Ul‐Huq, Syed; Rahman, Mohammad Morshedur; Ashraf, Badar Nadeem

doi:10.1016/j.ribaf.2017.07.035

Cited by 72 publications

(84 citation statements)

References 84 publications

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“…Table 1 summarizes the variables employed in this study. (Zheng et al 2017b) Firm performance PER Equals the ratio of pre-tax profit over total assets (Zheng et al 2017a) Leverage LEV Equals total debt over total assets of each bank (Rahman et al 2017) …”

Section: Study Samplementioning

confidence: 99%

Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries

Rahman

Ashraf

Zheng

et al. 2017

IJFS

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Over last two decades, emerging and developing nations have desperately endeavored for efficient banking sectors. In this study, we argue that bank efficiency generates incentives that can impact banks' capital holdings and the cost of financial intermediation. Analyzing a panel dataset of 1190 banks from BRICS (Brazil, Russia, India, China, South Africa) countries over the period 2007-2015, we find robust evidence that more efficient banks hold higher capital and charge lower financial intermediation costs. In an extended sample over the period 2000-2015, we observe that cost efficiency had a marginal positive impact on bank capital during the global financial crisis of [2007][2008][2009]. We also observe that on average, banks increased the cost of financial intermediation during the crisis, however, greater efficiency helped banks to not charge higher intermediation costs. Our results imply the beneficial impact of bank efficiency for bank stability and real economy.

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Section: Study Samplementioning

confidence: 99%

Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries

Rahman

Ashraf

Zheng

et al. 2017

IJFS

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“…It plays a vital role in ensuring banks have sufficient capital to keep them out of financial distress. We employ total capital ratio as a measure for capital adequacy (see Agusman, Cullen, Gasbarro, Monroe & Zumwalt, 2014;Hossain et al, 2013;Lassoued et al, 2016;Shaban & James, 2018;Zheng et al, 2017). A lower capital adequacy ratio (CAR) implies a higher bank risk-taking.…”

Section: (B) Risk-takingmentioning

confidence: 99%

“…Bank size is a prevalent control variable employed by most researchers in their studies (e.g. Agusman et al, 2014;Brandao-Marques et al, 2020;Chen, Steiner, & Whyte, 1998;Dong, Liu, Shen, & Sun, 2016;Lassoued et al, 2016;Saunders et al, 1990;Shaban & James, 2018;Zheng et al, 2017). There are two perspectives regarding bank size.…”

Section: (D) Control Variablesmentioning

confidence: 99%

Banks’ Risk-taking and State Ownership: Evidence from Asian Emerging Markets

Lee

Hooy

2020

MJES

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This paper examines the relationship between state ownership and banks' risk-taking in nine Asian emerging markets for the period 2009 to 2017. The finding shows that state-owned banks are associated with higher risk-taking in terms of credit risk and return volatility. In addition, we investigate the effect of corporate governance (CG) mechanism with monitoring committee, board independence and gender diversity on state-owned banks' risk-taking. We find that the presence of monitoring committee on board has a reducing effect on state-owned banks' risk-taking. We further argue that independent directors help to reduce banks' risk-taking where their supervision should be robust enough even if there is huge government intervention. Nonetheless, we do not find strong evidence on the role of female directors. In a nutshell, board functions play a crucial role in monitoring and supervising banks' investment decisions to prevent excessive risk-taking from the government, which is relatively important in the context of Asian emerging markets.

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“…The value was found to be a determinant of capital adequacy. Ownership structure was examined by Zheng et al [15] and found to be a determinant of capital. Lotto [16] investigated the effect of the increased risk on capital requirements variability for the Tanzanian banking industry and found a positive causal relationship.…”

Section: Introductionmentioning

confidence: 99%

“…They explored the effect of fair value on capital adequacy ratio for Islamic and conventional banks in the GCC region and concluded that the capital adequacy of Islamic banks was less affected by fair value than conventional banks. Zheng et al [15] investigated the effect of ownership structure on capital and risk and found a positive association. Basher et al [7] studied the effect of increased capital of Islamic banks in the GCC region on risk and stability.…”

Section: Introductionmentioning

confidence: 99%

Effects of Banks’ Free Capital on Performance in Light of the 2008 Financial Crisis: Evidence from the GCC Region

Aldeehani¹,

Tt²

2017

J Bus Fin Aff

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how it affected the various performance indicators before and after the crisis should add an important contribution to the existing body of knowledge, especially for this region.In the next section, we review the relevant literature on capital adequacy with the objectives of identifying the proper variables to be investigated and developing the research hypotheses. This should be the proper end of the literature discussion before moving forward to the methodology section where we discuss the scope of the research, the nature of the data selected and methodology. That is followed by a section on the results discussion where we present and discuss the outcomes of our tests and model estimations. The paper ends with the conclusion section where we summarize the study and findings then discuss the possible implications and recommendations. Literature ReviewEver since the introduction of Basel I accord in 1988, consultants and researchers have been busy investigating the validity of CAR as an indicator of bank solvency. Like any business organization, banks exist to maximize the value of their shareholders. This goal is always related to two main elements; profit which is the driver of value maximization and risk which is a driver of solvency when low and a driver of higher returns when high. The main concern of the capital adequacy regulation is to monitor the level of risk which should not exceed a certain limit. This regulation suggests that banks face credit solvency risk when they fail to satisfy the capital adequacy ratio. Given the risk Keywords: Capital adequacy; Basel accords; Financial solvency; Financial crisis; GCC banks IntroductionInternational and national regulators consider bank capital as the first defensive shelter against insolvency in case of financial downturns. Since the Basel I accord in 1988, capital adequacy ratio (CAR), defined, as the percentage of capital to risky assets, has been a subject of utmost concern to practitioners and researchers. Ever since that time, regulators were concerned that CAR may not be enough to provide the proper protection against credit risk, hence, the propositions of Basel II accord in 2004 and Basel III accord introduced in 2013-2105. Major financial downturns (i.e., the Asia financial crisis in 1997 and the latest global financial crisis in 2008) have proved the seriousness of that concern.Acknowledging the importance of capital, researchers have strived to investigate the validity of CAR as a measure to guard against bank insolvency. Different causal models were proposed. Some, used CAR as a dependent variable affected by various explanatory variables. Others, albeit more, have used it as the explanatory variable explaining the variability in some independent variables representing riskiness, profitability, etc. Some research attempts questioned the validity of the ratio to serve its purpose. The research outcome has been inconclusive. Fitch Ratings [1] argued that although banks may meet the minimum required CAR, they may well be undercapitalized due to man...

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Does the ownership structure matter for banks’ capital regulation and risk-taking behavior? Empirical evidence from a developing country

Cited by 72 publications

References 84 publications

Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries

Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries

Banks’ Risk-taking and State Ownership: Evidence from Asian Emerging Markets

Effects of Banks’ Free Capital on Performance in Light of the 2008 Financial Crisis: Evidence from the GCC Region

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