Management Behaviour in Vietnamese Commercial Banks

Abstract

This study identifies managerial behaviour in Vietnamese banks between the years 2000 and 2014, based on the managerial framework of banks, as identified by Rossi et al. (2009). This framework is built on the interrelationships between efficiency, risk, capital and diversification. This study uses the Z-score to measure insolvency risk, the SFA to estimate cost efficiency, the ratio of total equity to total assets to capture bank capital, and the HHI index to measure the diversification of revenue and earning assets. The results from the 3SLS estimator indicate that revenue diversification has an insignificant impact on insolvency risk, capital ratio and cost efficiency, but earning assets diversification has a negative effect on these three variables, supporting "classical diversification", "economic capital" and "monitoring" behaviours. Moreover, a decline in cost efficiency leads to a rise in insolvency risk, implying "bad management" behaviour; an increase in risk results in a reduction in cost efficiency, indicating "bad luck" behaviour; and a reduction in capital ratio in the poorly capitalized banks leads to a growth in risk, suggesting "moral hazard" behaviour. The results remain strongly robust when using an alternative risk measurement (the loan loss provision ratio) and an alternative SFA model.

The inter-relationships among liquidity creation, bank capital and credit risk: evidence from emerging Asia–Pacific economies

“…Meanwhile, the rise in the cost of capital due to raising new equity may encourage banks to choose portfolios with even higher risk. Nguyen et al (2016), however, show that a decrease in the capital ratio is followed by an increase in risk. This supports the early findings of Baker and Wurgler (2015) who stated that higher capitalized banks tend to have better access to financing sources with lower cost and better access to higher-quality assets markets, therefore having a lower risk than lower capitalized banks.…”

Bank Risk, Capitalisation and Technical Efficiency in the Vietnamese Banking System

“…Nguyen and Nghiem (2015) using the Indian data, however, show that a reduction in cost efficiency is followed by an increase in bank risk and a decrease in the capital ratio is followed by an increase in risk. In the context of the Vietnamese banking system, Nguyen, Nghiem and Roca (2016) suggest that earning asset diversification impacts risk, cost efficiency and bank capital negatively.…”

“…In order to mitigate this issue of input-output variables employed for frontier economic approaches, we use Data Envelopment Analysis with the use of standard financial ratios as outputs to estimate technical efficiency of banks. Second, while a number of studies are conducted in many countries, regions using different methods, the experience in emerging markets, especially Vietnam remains limited [Nguyen, Nghiem, and Roca (2016) may be one of the exceptions]. The experiences of other economies cannot be automatically applied to the banking system in underdeveloped economies because of the substantial differences in regulatory and economic environments and the level and quality of services associated with deposits and loans that exist in institutional reality.…”

Compensation Convexity without Utility Restriction

“…Nguyen et al . () identify managerial behaviour using data about Vietnamese banks, suggesting that managers’ moral hazard behaviour, as studied in this paper, is empirically important. Aside from the profit maximization issue investigated in this paper, managerial discretion could be another dimension of the divergence of interests in a principal‐agent setting.…”