Risk-taking by banks: evidence from European Union countries

Abstract

Purpose

The aim of this paper is to study the relationship between banks' ownership structure and their risk-taking behavior as well as the impact of banking regulation on banks' approach to taking risk, after the 2008 financial crisis.

Design/methodology/approach

The empirical analysis considers a sample of listed banks from European Union (EU) countries, over the period of 2011–2016 and uses the generalized least squared (GLS) random effect (RE) method, following Baltagi and Wu (1999) and Pathan (2009).

Findings

The authors find that the structure of the board of directors can influence bank risk behavior but not the ownership concentration. No significant relation was found between the influence of the regulatory environment and bank risk, i.e., stricter regulation has no effect on risk taking by banks.

Originality/value

The paper contributes to the literature in risk measures and banks' corporate governance. It also considers the impact of regulatory framework on banks' risk-taking behavior. The aim of this empirical analysis was to examine in greater detail these subjects and the dynamics between them after the significant structural changes in the macroeconomic environment and in the financial system, particularly with regards the regulatory and supervisory framework following the 2008 financial crisis, using data from European Union countries.

Citation

Garcia, M.T.M. and Ye, A.J. (2023), "Risk-taking by banks: evidence from European Union countries", China Finance Review International, Vol. 13 No. 4, pp. 537-567. https://doi.org/10.1108/CFRI-12-2022-0248