Search results
1 – 10 of over 41000Zahra Banakar, Madjid Tavana, Brian Huff and Debora Di Caprio
The purpose of this paper is to provide a theoretical framework for predicting the next period financial behavior of bank mergers within a statistical-oriented setting.
Abstract
Purpose
The purpose of this paper is to provide a theoretical framework for predicting the next period financial behavior of bank mergers within a statistical-oriented setting.
Design/methodology/approach
Bank mergers are modeled combining a discrete variant of the Smoluchowski coagulation equation with a reverse engineering method. This new approach allows to compute the correct merging probability values via the construction and solution of a multi-variable matrix equation. The model is tested on real financial data relative to US banks collected from the National Information Centre.
Findings
Bank size distributions predicted by the proposed method are much more adherent to real data than those derived from the estimation method. The proposed method provides a valid alternative to estimation approaches while overcoming some of their typical drawbacks.
Research limitations/implications
Bank mergers are interpreted as stochastic processes focusing on two main parameters, that is, number of banks and asset size. Future research could expand the model analyzing the micro-dynamic taking place behind bank mergers. Furthermore, bank demerging and partial bank merging could be considered in order to complete and strengthen the proposed approach.
Practical implications
The implementation of the proposed method assists managers in making informed decisions regarding future merging actions and marketing strategies so as to maximize the benefits of merging actions while reducing the associated potential risks from both a financial and marketing viewpoint.
Originality/value
To the best of the authors’ knowledge, this is the first study where bank merging is analyzed using a dynamic stochastic model and the merging probabilities are determined by a multi-variable matrix equation in place of an estimation procedure.
Details
Keywords
Jinyong Kim and Yong-Cheol Kim
U.S. bank holding companies (BHCs) have experienced dynamic changes over a period of 2000–2010. We find that the size distribution of sample banks becomes highly positively skewed…
Abstract
U.S. bank holding companies (BHCs) have experienced dynamic changes over a period of 2000–2010. We find that the size distribution of sample banks becomes highly positively skewed with a small number of big banks becoming super-sized, and these big banks tend to take extra risk by holding derivative positions for trading purposes. The ten largest risk-taking banks hold about 70% of total assets of all the sample banks in 2010. We investigate whether the risk-taking activities of the BHCs translate into higher risk-adjusted return performance. In extensive panel regression analyses, we find that the risk-taking strategies of large banks by holding derivative positions for trading purpose do not show the clear evidence of enhancing risk-adjusted performance. We find that negative impacts of extra risk-taking on the risk-adjusted performance become bigger with the size of banks.
Details
Keywords
The relation between size and growth in banking firms in emerging economies has not been adequately addressed in the literature. By employing data for 1992-2014, the purpose of…
Abstract
Purpose
The relation between size and growth in banking firms in emerging economies has not been adequately addressed in the literature. By employing data for 1992-2014, the purpose of this paper is to examine the relationship between growth and productivity and how it interacts with ownership.
Design/methodology/approach
The longitudinal nature of the data suggests that the appropriate technique for the analysis is panel data econometrics. Accordingly, consistent with prior research, the author employs a fixed effects model. Besides accounting for firm-level observables, the author controls the economic environment and bank ownership by employing real GDP growth and ownership dummies.
Findings
The evidence appears to suggest that growth improves through both active and passive learning, the magnitude of the former far outweighing that of the latter. These results are remarkably robust: both baseline regressions and sensitivity tests point to similar conclusions.
Originality/value
To the best of the author’s knowledge, the paper makes two original contributions. First and more broadly, it tests the relationship between growth and productivity for banks in a leading emerging economy. Second, it distinguishes between two kinds of learning – active and passive – and explores which of them are more relevant for growth.
Details
Keywords
The purpose of this paper is to give a nuanced picture of how the local bank sector influences new firm formation and how this differs along the urban-rural hierarchy. Thus, the…
Abstract
Purpose
The purpose of this paper is to give a nuanced picture of how the local bank sector influences new firm formation and how this differs along the urban-rural hierarchy. Thus, the present paper increases the knowledge concerning the importance of the local bank sector in influencing new firm formation. In this respect, it also sheds light on how banks influence regional growth through their impact on start-ups.
Design/methodology/approach
The empirical design is based on a cross-sectional approach from 2010, where Swedish municipalities are employed as the unit of observation. To overcome a possible endogeneity problem, an instrumental variable approach is applied. A two-stage least squares approach is employed in which instruments for the local bank sector in 2010 are utilised.
Findings
The findings present positive relationships among the average size of the bank branches, independent banks per capita, bank branches per capita, bank competition, and the number of local start-ups in Sweden. Hence, access to financial funds is important for new firm formation. When the sample is divided across the urban-rural hierarchy, differences arise concerning the importance of the local bank sector. Independent banks per capita and bank branches per capita tend to have a larger impact on firm formation in rural municipalities.
Originality/value
This paper is novel in its detailed approach to describing the local bank sector. This topic is important for local and national policy makers, demonstrating the importance of the local bank sector for a growing and healthy regional economy. This study is also the first study on this topic in Sweden.
Details
Keywords
Ramona Rupeika-Apoga, Inna Romānova and Simon Grima
Introduction – Stability of commercial banks is on the back stone of a country’s economy and its development, making bank stability one of the main concerns of financial…
Abstract
Introduction – Stability of commercial banks is on the back stone of a country’s economy and its development, making bank stability one of the main concerns of financial regulators. The bank stability models for large and small economies differ significantly.
Purpose – In this chapter we examine the determinants of bank stability in a small post-transition economy, based on the case of Latvia. Latvia has a well-organized banking system, providing a wide range of services to local and international customers. Besides, the Latvian banking sector is quite unique in Europe as it comprises two sets of banks with radically different target groups of customers and sources of revenue.
Methodology – To carry out this study we analysed panel data of the quarterly financial statements of Latvian banks operating during the period 2012-2017.
Findings – We found evidence of a negative significant relationship between size and bank stability, negative significant impact of liquidity risk on bank stability, a positive significant relationship between capital adequacy and bank stability, as well as a positive significant relationship between credit risk and stability. These results increase the importance of a sufficient level of capital adequacy ratio and liquidity to maintain bank stability. In general, the results of the study confirm the results of other studies on bank stability of small economies, with some exceptions due to the unique situation in term bank business models applied by Latvian banks. The current study provides valuable policy implications to small post-transition economies and stakeholders in general.
Details
Keywords
Amy Yueh-Fang Ho, Hsin-Yu Liang and Tumenjargal Tumurbaatar
This is the first study to investigate the impact of corporate social responsibility (CSR) on corporate financial performance (CFP) in Mongolian banks. We hand-collect data to…
Abstract
This is the first study to investigate the impact of corporate social responsibility (CSR) on corporate financial performance (CFP) in Mongolian banks. We hand-collect data to construct CSR disclosure index from 65 annual reports of 12 banks in Mongolia from 2003 to 2012. The results indicate that banks with larger size or Chief Executive Officer duality exhibit higher CSR performance. Moreover, banks with higher CSR performance tend to have higher net interest margin and lower non-performing loan. Furthermore, the CSR–CFP relationship varies before and after the financial crisis. The findings provide meaningful insight to the foreign investors regarding the effect of CSR on the profitability and credit risk in Mongolian banking sector.
Details
Keywords
Fadzlan Sufian and Muzafar Shah Habibullah
The purpose of the present study is to investigate the effect of consolidation on Malaysian banking sector's market structure and competition.
Abstract
Purpose
The purpose of the present study is to investigate the effect of consolidation on Malaysian banking sector's market structure and competition.
Design/methodology/approach
The paper employs the Panzar‐Rosse (P‐R) method to compute the H‐statistics of the Malaysian banking sector.
Findings
The results from the P‐R method indicate positive H‐statistics ranging from 0.680‐0.747 under the TREV estimation and 0.547‐0.714 under the TINT estimation. The Wald χ2 test statistics seem to reject the market structure of monopoly or perfect competition hypothesis. The results clearly indicate monopolistic competition behavior in the Malaysian banking sector. During the period under study, the paper finds evidence of greater competition in the overall market segment, which is comprised of operating income from fee and commission based products compared to the traditional interest‐based market.
Research limitations/implications
The empirical findings from this study clearly indicate that competitive behaviour of banks may be explained by factors other than the number of banks operating in the banking sector and their levels of concentration. However, the results need to be interpreted with caution since the liberalization and deregulation of the Malaysian banking sector remains an ongoing process.
Originality/value
Despite substantial studies performed to examine the impact of consolidation on banks' competitive behaviour, these studies have concentrated mainly on the banking sectors of the western and developed countries. On the other hand, empirical evidence on the developing countries banking sectors is relatively scarce.
Details
Keywords
This paper aims to investigate the effects of cost, revenue and profit efficiency on bank profitability in an emerging economy such as India over the period 1997 to 2017…
Abstract
Purpose
This paper aims to investigate the effects of cost, revenue and profit efficiency on bank profitability in an emerging economy such as India over the period 1997 to 2017. Additionally, this study examines the effect of efficiency on profitability across different ownership groups for a panel of 70 Indian commercial banks.
Design/methodology/approach
In the first stage, using stochastic frontier analysis, we estimate the efficiency scores of cost, revenue and profit over the examined period. In the second stage, this study uses the two-step system generalized-method of moments dynamic panel approach to investigate the impact of several efficiency measures on bank profitability.
Findings
Results estimated through and system generalized-method of moments indicate that a higher level of cost, revenue and efficiency significantly improves India's bank profitability. Regarding ownership groups, this study finds that the public sector banks are most cost-efficient compared to private and foreign banks. Other bank-specific, macroeconomic and institutional variables have played a significant role in determining bank profitability.
Practical implications
The findings of the study extend some important policy implications. In light of the rapid decline in bank profitability, banks should focus on increasing the efficiency of their operations. Improvement in profit, cost and revenue efficiency can ameliorate bank performance significantly. Profit efficiency that takes into account both cost and revenue efficiency should be maintained reasonably to prevent the declining pattern of bank profitability that the industry has witnessed over the years.
Originality/value
To the best of the author's knowledge, this study is a fresh piece of research that fulfils an urgent need of investigating the dynamics between bank efficiency and bank profitability in India. In an emerging economy like India, where the banking sector has witnessed substantial structural transformations over the past two decades, such study demands an immediate empirical investigation.
Details
Keywords
Rafik Harkati, Syed Musa Alhabshi and Salina Kassim
The purpose of this paper is to investigate the influence of economic freedom and six relevant subcomponents of it on the risk-taking behavior of banks in the Malaysian dual…
Abstract
Purpose
The purpose of this paper is to investigate the influence of economic freedom and six relevant subcomponents of it on the risk-taking behavior of banks in the Malaysian dual banking system. It also aims to make a comparative analysis between Islamic and conventional banks operating in this dual banking sector. Moreover, the study is an effort to enrich the existing literature by presenting empirical evidence on the argument that the risk-taking behavior of the two types of banks is indistinguishable given that they operate in the same regulatory environment.
Design/methodology/approach
Secondary data of all banks operating in the Malaysian banking sector are collected from FitchConnect database, in addition to the economic freedom index from Foundation Heritage for the period 2011–2017. Generalized least squares technique is employed to estimate the influence of economic freedom and the six relevant subcomponents of it on the risk-taking behavior of banks.
Findings
The level of economic freedom influenced risk-taking behavior within the banking sector as a whole, conventional and Islamic banking sectors negatively during the study period (2011–2017). Risk-taking behavior of conventional and Islamic banks is similar. However, conventional banks turn to be less influenced by economic freedom level as compared to Islamic banks.
Practical implications
The government and regulators may benefit from the results by rethinking and setting the best economic freedom index that better serves the stability of the banking system, and lessens banks’ risk-taking inclination.
Originality/value
To the present time, this paper is thought to be of a significant contribution. Given the argument that Islamic and conventional banks behave in the same way. This is one of the first attempts to address this issue in light of the influence of economic freedom and six subcomponents of it on the risk-taking behavior of banks operating in a dual banking system.
Details
Keywords
Krishnan Dandapani, Edward R. Lawrence and Fernando M. Patterson
The organizational form of financial institutions is related to their level of risk, leverage, liquidity and capitalization. High level of risk and leverage and lower levels of…
Abstract
Purpose
The organizational form of financial institutions is related to their level of risk, leverage, liquidity and capitalization. High level of risk and leverage and lower levels of liquidity and capitalization are considered to be the root causes of the 2008 financial crisis. The purpose of this paper is to investigate if banks affiliated to holding company structure contributed more to the root causes of crisis than unaffiliated banks.
Design/methodology/approach
The paper isolates the effect of holding company association by restricting the sample to one-bank holding companies and individual banks. A comparative analysis of independent and holding company-affiliated banks is performed. Univariate analysis and multivariate regressions are used to compare the risk, leverage, liquidity and capitalization of affiliated and independent banks.
Findings
The paper finds that holding company affiliation is linked to several root causes of the 2008 financial crisis. Specifically, holding company affiliation results in higher levels of home mortgage loans underwritten and underperforming, higher leverage, lower liquidity and lower capitalization for the subsidiary bank.
Practical implications
The paper demonstrates that affiliated banks use their higher leveraged positions to engage in riskier home mortgage lending, sacrificing both liquidity and capital adequacy. These findings can help policy makers to focus on the group of banks that are part of holding company affiliation and implement such policies and regulations so as to avoid any re-occurrence of financial crisis.
Originality/value
This paper is the first to link the structural differences in banks to the root causes of financial crisis and to isolate the effect of holding company affiliation through sample selection. The paper will be valued to other researchers who try to isolate the effect of holding company affiliation and those studying the causes of the financial crisis of 2008.
Details