Risk Taking in Banking

• Main Authors: Sheng-Hong Chen, 陳昇鴻
• Other Authors: Tsorng-Chyi Hwang
• Format: Others
• Language: en_US
• Published: 2007
• Online Access: http://ndltd.ncl.edu.tw/handle/69651371853655538519

博士 === 中興大學 === 應用經濟學系所 === 95 === This dissertation is composed of three essays and mainly to focus on the issue of risk taking in banking. Previous research works on cross-country studies, with respect to the key determinants of influencing ban’s risk taking behavior, is still few and in the earlier stage. This dissertation will fill this gap on related empirical analysis and contributes to the integration with more comprehensive risk factors, with regard to charter value, ownership structure, regulatory policy and macroeconomic conditions, to identify risk taking in banking. In first essay, using new data combined with country-level data and bank-level data from 43 countries and 867 banks, this study empirically identifies key determinants of a bank’s risk-taking behavior. The study integrates charter value, holdings, ownership structure, bank characteristics, and macroeconomic conditions. The result indicates that a decline in charter value increases bank risk. The relationship between stable shareholders'' ownership and bank risk is negative and nonlinear, implying that risk decreases initially with stable shareholder ownership, and then increases as the asset substitution effect dominates the effect of managerial entrenchment on bank risk. Second essay examines the impact of diversification on risk taking behavior in financial conglomerates using the data on 780 banks across 43 countries over the period 1998–2002. The System GMM (Generalized Methods of Moments) is utilized to investigate the dynamic adjustment behavior for financial conglomerates. The empirical results reveal that the diversification has remarkable effect on financial conglomerate''s risk taking behavior, implicating that financial conglomerates with high diversified activity can mitigate their risk taking behavior. Moreover, the decline of charter values increases financial conglomerate’s risk. The relationship between the ownership by stable shareholders and risk in financial conglomerates is nonlinear; the risk decreases initially with the proportion of stable shareholders in financial conglomerates, and then increases as the asset substitution effect dominates the effect of managerial entrenchment on their risks. The primary effect, however, is the risk-reducing managerial entrenchment effect. Third easy has empirically explored the main determinants of affecting risk taking behavior in Credit Department of Farmer''s Association''s (CDFA), and then investigated if the mandatory Deposit Insurance scheme imposed in 1999 to motivate CDFAs to take excessive risk using dynamic panel data model. The empirical findings document that CDFAs substantially take more risk taking after mandatory deposit insurance as the result of the recent crisis for them in the rural credit market. This strongly implies that the effectiveness of mandatory deposit insurance does not meet to policy expectations and still have to adjust the current scheme on the purpose of financial stability in rural credit market.