scholarly journals Bank competition and risk-taking in the European Union: Evidence of a non-linear relationship

2021 ◽  
Vol 66 (230) ◽  
pp. 35-65
Author(s):  
Bogdan Căpraru ◽  
Iulian Ihnatov ◽  
Nicoleta-Livia Pintilie
Keyword(s):  
Linear Relationship ◽  
Risk Taking ◽  
Business Models ◽  
Bank Competition ◽  
The European Union ◽  
Risk Appetite ◽  
Competition Level ◽  
Non Linear ◽  
European Banks ◽  
The Impact

This paper assesses the impact of bank specialisation and business models on the relationship between competition and risk. We tested the non-linear relationship between bank competition and risk on an extensive sample of 5,119 European banks active during 2000-2018, using system GMM. The results confirmed the nonlinear relationship between competition and risk-taking. Cooperatives are better protected against liquidity risks and are more stable. Well-diversified banking entities take more risks than their counterparts, whereas larger institutions have a lower risk appetite and a higher exposure to liquidity shocks. Future regulations should consider different risk strategies to make them more efficient and to generate the expected outcomes. The most recent regulatory developments have reduced the risk appetite of large financial institutions. Lastly, it is critical that regulators monitor M&A activity and ensure the optimal competition level.

The impact of bank liquidity risk on risk-taking and bank lending: evidence from European bank

2021 ◽  
Vol 6 (2) ◽  
pp. 82-97
Author(s):  
Hongyan Liang ◽  
Zilong Liu
Keyword(s):  
Growth Rate ◽  
Risk Taking ◽  
Fixed Effects ◽  
Liquidity Risk ◽  
Bank Lending ◽  
Basel Iii ◽  
European Banks ◽  
Risk Taking Behavior ◽  
Loan Growth ◽  
The Impact

Objective – This paper uses a sample of annual observations of European banks to examine whether the liquidity risk affects a bank’s risk-taking behavior and its future loan growth. Methodology – A sample of European banks (27 member countries of the European Union plus U.K.) over the period of 2005 to 2019 are used in this study. Liquidity risk is measured by the ratio of liquid assets to total assets. Given the longitudinal nature of the data, the authors use panel regression with bank fixed effects to control for unobserved characteristics that might affect the dependent variable. Findings – The authors find that banks holding more liquid assets take less risk and show a higher subsequent loan growth rate. These results hold for both small and large banks. Novelty – To the authors’ best knowledge, this is one of the earliest studies to carefully examine the effects of liquidity risk on risk-taking behavior and loan growth rate for European banks. Our research suggests that the current Basel III requirement on liquidity ratio can decrease bank’s risking-taking behavior while not necessarily impact their future loan growth. Type of Paper: Empirical JEL Classification: G21, G01, G18. Keywords: Bank Liquidity Risk; Risk-taking Behavior; Loan Growth; Basel III

scholarly journals Government Size and Corruption: A Non-linear Analysis in the Case of EMCCA

2021 ◽  
Vol 12 (4) ◽  
pp. 17
Author(s):  
Assoumou Ondo ◽  
Beau Jency Owono Ondo
Keyword(s):  
Linear Relationship ◽  
Central Government ◽  
Central Africa ◽  
Linear Analysis ◽  
Government Size ◽  
Economic Community ◽  
Non Linear ◽  
The Government ◽  
The Impact ◽  
The Relationship

This article analyzes the relationship between Government size and corruption. Unlike the works in the way which suppose a linear relationship between the two variables, we estimate a panel with change of the modes to characterize the impact of the size of the Central Government on corruption, in the countries of the economic community and monetary of Central Africa (EMCCA). The results show that there is a non-linear relationship between these two variables. Indeed, a strong involvement of the Government in economic activity results in a significant increase in corruption when the Government exceeds a size of 13.5508% of the GDP.

scholarly journals The Impact of Terrorism Activities As Threat To Unstable Economy on Foreign Direct Investments FDI: A Panel Study of 33 Sub-Saharan African Countries

2020 ◽  
Vol 5 (4) ◽  
Author(s):  
Yao HongXing ◽  
Winfred Okoe Addy ◽  
Samuel Kofi Otchere ◽  
Robert Yao Aaronson ◽  
Jean-Jacques Dominique Beraud
Keyword(s):  
Foreign Direct Investment ◽  
Linear Relationship ◽  
Direct Investment ◽  
Panel Study ◽  
Random Effect ◽  
Foreign Direct Investments ◽  
African Countries ◽  
Non Linear ◽  
Sub Saharan ◽  
The Impact

The study aims to assess the impact of terrorism activities on foreign direct investment in a panel study of 33 Sub-Saharan African countries. In order to achieve the objective of the study, it employed panel data methodologies such as GLS random-effect, ML random-effect, fixed effect regression, generalized linear model and multivariate regression methods to enable it make statistically and robust inference or conclusion. However, the study found that there is an inverse linear relationship or impact on foreign direct investment in Sub-Saharan Africa. Also, the study found out that economic growth and foreign direct investment are inversely related and corruption control has positive and direct linear relationship with foreign direct investment. As the study focused on the linear relationship of terrorism activities and foreign direct investments, it recommends further studies into the subject-matter by employing the non-linear approaches to ascertain the non-linear relationship between the two.

Are Risk-Based Capital Requirements Detrimental to Corporate Lending?

2018 ◽  
Author(s):  
Brunella Bruno ◽  
Giacomo Nocera ◽  
Andrea Resti
Keyword(s):  
Asset Allocation ◽  
Business Models ◽  
Capital Requirements ◽  
Financial Repression ◽  
European Banking ◽  
European Banks ◽  
Corporate Loan ◽  
Capital Regulations ◽  
Asset Allocations ◽  
The Impact

In this chapter, we summarize the main results of a recent empirical research concerning European banks. We first explore the main drivers of the differences in risk-weighted assets (RWAs) across a sample of fifty large European banking groups. We then assess the impact of RWA-based capital regulations on those banks’ asset allocations in 2008–14. We find that risk weights are affected by bank size, business models, and asset mix. We also find that the adoption of internal ratings-based (IRB) approaches is an important driver of RWAs and that national segmentations explain a significant (albeit decreasing) share of the variability in risk weights. As for the impact of internal ratings on banks’ asset allocation in 2008–14, we uncover that banks using IRB approaches more extensively have reduced more (or increased less) their corporate loan portfolio. This effect is somewhat stronger for banks located in Eurozone periphery countries during the 2010–12 sovereign crisis. We do not find evidence, however, of internal models producing a reallocation from corporate loans to government exposures, suggesting that other motives prevailed in driving banks towards sovereign bonds during the Eurozone sovereign crisis, including the so-called ‘financial repression’ channel.

The new European crowdfunding regulation: facilitating cross-border services

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Marco Brand
Keyword(s):  
European Union ◽  
Financial Services ◽  
Business Models ◽  
Service Providers ◽  
The European Union ◽  
Content Type ◽  
Cross Border ◽  
Funding Sources ◽  
Capital Markets Union ◽  
The Impact

Purpose To explain the new Crowdfunding Regulation to market participants and to describe the impact of the Crowdfunding Regulation on current crowdfunding business models in the European Union. Design/methodology/approach This article provides an overview of the new Crowdfunding Regulation with a focus on the provisions concerning cross-border services (“European Passport”) and the new authorization requirements for crowdfunding service providers. Findings In particular the introduction of the European passport will open new funding sources for project owners. This together with the harmonized authorization requirements of crowdfunding service providers is expected to contribute to further growth of the crowdfunding market in the European Union. The Crowdfunding Regulation is a further step on the way to a Capital Markets Union in Europe and regulates crowdfunding for the first time on a European level. Practical implications The Crowdfunding Regulation does not cover all existing crowdfunding business models in Europe (e.g., consumer as project owners and qualified subordinated loans are exempted). Insofar, the rules of the Member States continue to apply with the consequence of a partial fragmentation of applicable regulations. Originality/value Expert guidance from experienced financial-services lawyer.

scholarly journals Executive compensation and firm performance: a non-linear relationship

2019 ◽  
Vol 17 (2) ◽  
pp. 1-17 ◽  
Author(s):  
Rijamampianina Rasoava
Keyword(s):  
Firm Performance ◽  
Executive Compensation ◽  
Linear Relationship ◽  
South African ◽  
Boards Of Directors ◽  
Company Size ◽  
Executive Pay ◽  
Optimal Contracting ◽  
Non Linear ◽  
The Impact

In order to ensure profitability for shareholders, optimal contracting recommends the alignment between executive compensation and company performance. Large organizations have therefore adopted executives remuneration systems in order to induce positive market reaction and motivate executives. Complex compensation schemes are designed by Boards of Directors using strong pay-performance incentives that explain high levels of executive pay along with company size, demand for management skills and executive influence. However, the literature remains inconclusive on the pay-performance relationship owing to the various empirical methods used by researchers. Additionally, there has been little effort in the literature to compare methodologies on the pay-performance relationship. Using the dominant agency theory framework, the purpose of this study is to establish and examine the relationship between firm performance and executive pay. In addition, it intends to assess the characteristic of model specifications commonly adopted. To this aim, a quantitative analysis consisting of three complementary methods was performed on panel data from South African listed companies. The results of the main unrestricted first difference model indicate a strong non-linear relationship where the impact of current and previous firm performance on executive pay can be observed over 2 to 4-year period providing support to the optimal contracting theoretical perspective in the South African business context. In addition, CEO pay is more sensitive to firm performance as compared to Director pay. Lastly, although it affects executive pay levels, company size is not found to improve the pay-performance relationship.

Does economic freedom matter for risk-taking? Evidence from MENA banks

2016 ◽  
Vol 8 (2) ◽  
pp. 114-136 ◽  
Author(s):  
Saibal Ghosh
Keyword(s):  
Risk Taking ◽  
Instrumental Variable ◽  
Design Methodology ◽  
Economic Freedom ◽  
Bank Risk ◽  
Cross Sectional ◽  
Content Type ◽  
Level Data ◽  
Risk Appetite ◽  
The Impact

Purpose The relevance of economic freedom in influencing bank risk taking has not been adequately addressed in the literature. In this connection, employing bank-level data for 2000-2012, the purpose of this paper is to examine the impact of economic freedom on risk taking by MENA banks. Design/methodology/approach Given the cross-sectional time-series nature of the data, the author employs panel data techniques to explore this issue. In addition, the author examines the robustness of the results using instrumental variable techniques. Findings The findings appear to suggest that economic freedom exerts a significant and non-negligible impact on bank risk taking. Among the sub-components of economic freedom, it is observed that higher levels of both business and monetary freedom increase variability of profits and, thereby, raise the risk appetite of banks. Risk taking by banks appears to be reliably lower after the crisis than in the period prior to it, although there was a substantial increase in bank risk taking during the crisis. Originality/value To the best of the author’s knowledge, this is one of the earliest studies to explore the interlinkage between economic freedom and bank risk taking for MENA banks.

scholarly journals The Non-Linear Effect of Corporate Taxes on Economic Growth

2015 ◽  
Vol 8 (s1) ◽  
pp. 14-31 ◽  
Author(s):  
Ján Huňady ◽  
Marta Orviská
Keyword(s):  
Economic Growth ◽  
Linear Relationship ◽  
Fixed Effects ◽  
Negative Impact ◽  
Strong Support ◽  
Tax Rates ◽  
Corporate Tax ◽  
Non Linear ◽  
Corporate Tax Rates ◽  
The Impact

Abstract The paper deals with the problem of taxation and its potential impact on economic growth and presents some new empirical insights into this topic. The main aim of the paper is to verify an assumed nonlinear impact of corporate tax rates on economic growth. Based on the theory of public finance and taxation, we hypothesize that at relatively low tax rates it is possible that the impact of taxation on economic growth become slightly positive. On the other hand when the tax rates are higher a negative impact of taxation on economic growth could be expected. Despite the fact that the most of the existing studies find a negative linear relationship between these variables, we can also find strong support for a non-linear relationship from several theoretical models as well as some empirical studies. Based on panel data fixed-effects econometric models, we, as well, find empirical evidence for a non-linear relationship between nominal and effective corporate tax rates and economic growth. Our data consists of annual observations for the period 1999 to 2011 for EU Member States. Based on the results, we also estimated the optimal level of the corporate tax rate in terms of maximizing economic growth in the average of the EU countries.

scholarly journals Cash Holding and Firm Value in the Presence of Managerial Optimism

2021 ◽  
Vol 14 (8) ◽  
pp. 356
Author(s):  
Ashfaq Habib ◽  
M. Ishaq Bhatti ◽  
Muhammad Asif Khan ◽  
Zafar Azam
Keyword(s):  
Linear Relationship ◽  
Firm Value ◽  
Manufacturing Firms ◽  
Economic Conditions ◽  
Cash Holding ◽  
The Novel ◽  
Non Linear ◽  
Managerial Optimism ◽  
The Impact

Cash holding is important for Chinese manufacturing firms coping with the increasing costs of financing and tough economic conditions. This study examines the impact of cash holding on the firm value of Chinese manufacturing businesses. We found evidence that a non-linear relationship exists between cash holding and firm value in these companies. The study reveals that a higher level of cash holding in financially constrained firms negatively affects the firm value, while unconstrained firms with a less cash holding level have a better firm value. Finally, this research is enriched by implementing the novel measure of managerial optimism. Revealed is the interactive role of cash holding and optimism and how they affect firm value. The study concludes that managerial optimism influences a firm’s cash holding decisions, and this is more costly for unconstrained firms.

scholarly journals The Impact of Regulatory Capital and Bank Characteristics on the Relationship between Bank Competition and Risk Taking in the Banking System

2021 ◽  
Vol 28 (1) ◽  
pp. 87
Author(s):  
Eman Abdel-Wanis
Keyword(s):  
Risk Taking ◽  
Negative Impact ◽  
Positive Impact ◽  
Banking System ◽  
Bank Risk ◽  
Bank Competition ◽  
Regulatory Capital ◽  
The Impact ◽  
The Relationship ◽  
Positive Effect

This paper explores the association between bank competition, regulatory capital, and bank risk taking in an Egyptian setting and to examine the interaction between bank competition and regulatory capital and their impact on bank risk taking in developing countries like Egypt and also investigate the effect of bank characteristics on the relationship between bank competition and bank risk taking through a sample of 27 Egyptian listed banks during the period 2012-2018 using OLS regression . Results indicated that there is a negative impact of bank competition on the bank risk taking and a positive effect of regulatory capital on bank risk taking in the Egyptian listed banks. Results show that increase regulatory play a vertical role in enhance association between competition and bank risk taking and also, there is a positive impact of bank characteristics like: bank size and divarication on bank risk taking in the Egyptian banks. Results refer to there is no effect of bank type, leverage and profitability to support the relationship between bank competition and risk taking

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