Search results

This paper aims to investigate whether loan officers' risk taking in credit decisions are associated with their personal financial risk preference and personality traits or solely with bank-contextual and loan-relevant factors.

An online survey administered in six large Swedish banks to 163 loan officers responsible for assessing credit risk and approval of loan applications. The loan officers rated their likelihood of approving fictitious loan applications from business companies.

The loan officers' credit risk taking is associated with bank-contextual factors, directly with perceived organizational credit risk norms and indirectly with self-confidence in assessing credit risks through attitude to credit risk taking. A direct association is also found with personal financial risk preference but not with personality traits.

Increased awareness of that loan officers' personal financial risk preference is associated with their credit risk taking in loan decisions but that the banks' risk policy has a stronger association. Banks' managements and boards should therefore assure that their credit risk policy is implemented, followed and being aligned with their performance incentives.

Increased awareness of that loan officers' credit risk taking is associated with personal financial risk preference but more strongly with the banks' risk policy that motivate banks' managements and boards to assure that their credit risk policy is implemented, followed and being aligned with their performance incentives.

The first study which directly compare the associations of loan officers' risk taking in credit approvals with personal risk preference and personality traits versus bank-contextual factors and loan-relevant information.

The paper aims to investigate corporate risk-taking following changes in firms' credit ratings (CR) and the mechanisms the firms use in implementing the risk-taking.

The paper employs fixed-effect regression models to examine risk-taking behaviour after firms experience changes in CR after their ratings are downgraded to the lower edge of the investment grade rating (i.e. BBB-) and after their CRs are downgraded below the investment rating.

The paper finds that, whilst in general, changes in CR are negatively associated with post-event risk-taking, firms downgraded to BBB- do not increase their risk-taking. Only when firms are rated below this grade, firms significantly increase their risk-taking, suggesting that the association between downgrades in CR and firm risk-taking following the event is not linear. Further analysis suggests that these downgraded firms do not increase research and development (R&D) expenses or capital expenditures but employ long-term debt as their risk-taking mechanism.

The findings of the paper have practical implications for investors considering investing in downgraded-rating firms to shareholders of such firms and especially to those overseeing the firms' risk-taking policies.

The study fills the gap in the literature by providing empirical evidence on corporate risk-taking after changes in CR and also contributes to the optimal debt-maturity choice literature.

The purpose of this paper is to investigate the impact of diversification, corporate governance and capital regulations on bank risk-taking in Asian emerging economies.

The authors applied the generalized method of moments to analyze a sample of 116 listed banks of ten Asian emerging economies for the years 2010–2018.

The authors found that diversification, board size, CEO duality and board independence, block holders and capital regulations significantly affect bank risk-taking. In particular, nontraditional income sources such as noninterest income and adoption of diversification strategies minimize bank risk-taking.

It is expected that the outcomes of this study can be used by banks in Asian emerging economies that seek to reduce risk-taking by managing the diversification of their income streams and managing the impacts of capital regulation and implementing sound corporate governance features in monitoring their operations. This study suggests practical risk minimizing strategies for banks. First is the sourcing of nontraditional income and adoption of diversification strategies. Second, maintaining nonexecutive directors on the board would enhance monitoring of business activities. Third, maintaining deposit insurance would reduce bank’s risk. Government provides insurance to depositors to motivate them to deposit their funds into the banks. This, in return, facilitates banks to overcome risk. However, banks need to be cautious of any increase in capital ratio, as channeling funds into risky investments would increase risk.

This study is the first to investigate the impacts of corporate governance, diversification and regulation on bank’s risk-taking in a cross-country setting of ten Asian emerging economies.

This paper aims to investigate the influence of the central bank’s regulatory capital on commercial banks specific performance outcomes such as credit supply, interest rate spread (as a measure of efficiency) and non-performing loans (NPLs).

Using specific commercial bank-level panel data from 2002-2012, a system of equations was modeled that allows us to apply the system generalized methods of moment approach and estimate the equations, while controlling for specific bank level, industry and macroeconomic variables.

The study finds a positive relationship between a net minimum capital ratio and the net interest margin. Although this is in contrast with the study expectations, the result suggests that a high net minimum capital requirement would widen the spread between the lending and saving rates. The study further finds evidence to support the fact that high minimum capital requirement and excess capital above the minimum required drive credit growth in the banking sector of Ghana. However, high excess capital increases risk-taking activities of the banks, as excess capital is found to be associated with high NPL ratios.

Given the economic benefits and costs of sharply increasing bank regulatory capital, our results speak to the ongoing debates on the right level of capital, the effectiveness of the Bank of Ghana policy rate (PR) and the high lending rates that appear to respond only slowly to macroeconomic indicators such as the PR and the inflation rate. The finding also has practical implications for the adoption of the Basel III accord.

The empirical literature has not paid enough attention to the impact of regulatory capital on the three specific bank-level outcomes – NPLs, interest rate spread and the nature of interrelationships among these variables, particularly in the African context.

This paper investigates the effect of entrepreneurial orientation (EO) on small- and medium-sized enterprises' (SMEs) access to credit. Starting with the idea that SMEs' strategy-making process, structures and behaviour can favour credit access, the authors also explore the moderating role of bank lending technologies in shaping this relationship.

This study relies on a unique survey of Austrian and Italian SMEs which contains detailed information on access to credit, EO dimensions, relationship lending and firm-level characteristics. The authors perform stepwise logistic regressions to assess whether EO interacts with SME's access to finance, and how relationship lending enhances this relationship.

Proactiveness, autonomy and competitive aggressiveness are important constructs for improving access to bank financing. Those dimensions became more important when a relationship bank is involved, suggesting a role for relationship lending in overcoming SMEs' opaqueness. In addition, relationship lending is crucial for innovative SMEs in overcoming credit denial rates.

The small sample did not allow to analyse the effect of EO on discouraged borrowers. Furthermore, alternative measures of relationship lending (such as geographical proximity or the length of the relationship) and the share of credit granted by the relationship bank would have been interesting to further validate our results.

This study shows that EO dimensions and the type of lending technology are relevant for the financial success of SMEs. More precisely, the authors show that diversity within the banking system helps innovative, autonomous, proactive and competitive SMEs. These important pieces of soft information are injected into the final lending decision when a relationship bank is involved. The evidence suggests the need for SMEs to interact with local banks to fully exploit their EO posture.

To the authors' knowledge, this paper is the first attempt to analyse whether relationship lending can affect the EO–credit access relation.

The purpose of this paper is to examine the effect of inventory leanness on productivity. In particular, the authors explore the moderating role of environmental complexity and the mediating role of risk taking.

In the mediated moderation analysis of the relationship among inventory leanness, risk taking, environmental complexity and productivity, the authors adopt the instrumental variable method to test the hypotheses based on data collected from 1,709 Chinese listed manufacturing firms.

The results show that there is an inverted U-shaped relationship between inventory leanness and productivity. The authors then demonstrate the role of risk taking in mediating this relationship. Furthermore, the authors find that environmental complexity not only negatively moderates the relationship between inventory leanness and productivity, but also negatively moderates the relationship between risk taking and productivity.

Managers should not be excessively pursuing inventory leanness improvements, so as not to damage the ability to increase productivity.

This paper may be the first study to empirically demonstrate the moderating effect of environmental complexity and the mediating effect of risk taking on the inverted U-shaped relationship between inventory leanness and productivity.

The purpose of this paper is to explore the effect of monetary policy on bank risk in the banking system in some MENA countries. It explores how some economic and credit indicators affect the level of risk in the banking sector. It combines many factors that could affect banks’ risk appetite such as macroeconomic conditions, banks’ credit size and lending growth. The authors use nonperforming loans as a proxy for banking sector risks. At first, the authors have analyzed the linear relationship between monetary policy and credit risk. As mentioned above, nonlinearity is expected in the underlying relationship, and, thus, they have investigated the nonlinear relationship to deeply analyse the relationship using the dynamic panel threshold model, as stimulated by Kremer et al. (2013). Threshold models have gained a great importance in economics and finance for modelling nonlinear behaviour. Threshold models are useful in showing the turning points in the behaviour of financial and economic indicators. This technique has been applied in this study to study the effect of monetary policy on credit risk.

This paper is divided into the following sections: Section 2 which previews the recent literature; Section 3 which includes some stylized facts about the relationship between credit risk and monetary policy; Section 4 which deals with the model and methodology; Section 5 which handles the data sources and discusses the results, and finally Section 6 which is the conclusion. The paper adopts dynamic panel threshold model of Kremer et al. (2013).

The results show that the relationship between monetary policy and credit risk is positive and significant to a certain threshold, 6.3. If the lending interest rate is higher than 6.3, this increases the credit risk in the banking sector, because increasing the lending interest rate imposes huge burdens on the borrowers, and, therefore, the bad loans and nonperforming loans become more likely. Thus, the MENA countries need to decrease the lending interest rate to be less than 6.3 to reduce the effect of monetary policy on credit risk. Further, these results are qualitatively robust regarding the inclusion of additional control variables, using alternative threshold variables and further endogeneity checks of the credit risk, such as Risk premium and the squared term of the lending interest rate. The results of taking the risk premium and the squared term of the lending interest rate as a threshold served the analysis and confirmed the positive relationship between monetary policy and credit risk above a certain threshold. As for the risk premium, the relationship below the threshold was negative and significant. Other related research points might be a good avenue for the future research such as applying this approach to micro data of banks from different MENA countries. Also, more sophisticated approaches like time-varying panel approach to assess the relationship over the time can be applied.

The importance of this paper lies in the fact that it does not only study the effect of time, but it also focuses on the panel data about some economic and credit indicators in the MENA region for the first time. This is because central banks in the MENA region have common characteristics and congruous level of economic growth. Therefore, to study how the monetary policy affects those countries’ credit risks in their lending policies, this requires careful analysis of how the central banks in this region might behave to control default risks.

The purpose of this paper is to empirically analyse the cross‐countries determinants of nonperforming loans (NPLs), the potential impact of supervisory devices, and institutional environment on credit risk exposure.

The paper employs aggregate banking, financial, economic, and legal environment data for a panel of 59 countries over the period 2002‐2006. It develops a comprehensive model to explain differences in the level of NPLs between countries. To assess the role of regulatory supervision on credit risk, the paper uses several interactions between institutional features and regulatory devices.

The empirical results indicate that higher capital adequacy ratio (CAR) and prudent provisioning policy seems to reduce the level of problem loans. The paper also reports a desirable impact of private ownership, foreign participation, and bank concentration. However, the findings do not support the view that market discipline leads to better economic outcomes. All regulatory devices do not significantly reduce problem loans for countries with weak institutions, corrupt environment, and little democracy. Finally, the paper shows that the effective way to reduce bad loans is through strengthening the legal system and increasing transparency and democracy, rather than focusing on regulatory and supervisory issues.

First, higher CARs results in less credit exposures. Second, international regulators should continue their efforts to enhance financial development. The results suggest that foreign participation plays an important role in reducing credit exposure of financial institutions. However, in developed countries, foreign entry led to more problem loans. Finally, to reduce credit risk exposure in countries with weak institutions, the effective way to do it is through enhancing the legal system, strengthening institutions, and increasing transparency and democracy.

The paper contributes to the literature on banking regulation and supervision. It examines aggregated data which best reflect the level of NPL of the banks in a country as opposed to individual data included in databases that suffer from the problem of representativeness. It considers the impact of regulatory variables after controlling for bank industry factors that alter primarily problem loans. Finally, the paper examines the effectiveness of regulation through the inclusion of institutional factors.

This study empirically examines, from the first quarter of 1981 until the fourth quarter of 2017, the relations across customary domestic issuer credit ratings (long-term, short-term and subordinate) and three popular corporate risk-taking measurements (the variability of operating profitability, net profitability, and research and development expenses).

The author deploys categorical regressions and robustness tests with control variables, interaction terms, fixed effect variables, lag variables and delta variables.

The author documents that both short-term and subordinate domestic credit ratings are key determinants of the volatility of operating profitability. The author also identifies long-term credit ratings as secondary factors, yet they do affect broader corporate risk-taking behavioral features (along all three measurements). Furthermore, the author finds that the higher (lower) the credit ratings assigned, i.e. the superior (inferior) the credit quality externally judged, the more (less) overall risk firms tend to undertake.

It is the first research to examine both the inclusive influence and the granular effects of credit ratings on corporate risk-taking (CRT) behavior. It is also the only enquiry to inspect the specific relationships along three types of domestic issuer credit ratings: long-term, short-term and subordinate ratings.

This paper aims to analyze the relationship between bank institutional setting and risk-taking by exploring whether board education and turnover are drivers of the risk propensity of cooperative banks compared to joint-stock banks.

Based on a comprehensive data set of Italian banks over the 2011-2017 period, this paper examines whether these board characteristics affect the risk propensity of cooperative and joint-stock banks. Bank risk is measured by the Z-index, profit volatility and the ratio of non-performing loans to total gross loans.

The findings show that cooperatives take less risk than joint-stock banks and have lower board turnover and education. Furthermore, this study finds that while board education mediates the relationship between the cooperative model and bank risk-taking, there is no evidence for board turnover. Thus, the lower educational level of cooperative directors contributes to explaining the lower risk-taking of cooperative banks.

The findings have several implications. In terms of the more general policy debate, the results point to the need to strengthen the governance model for both joint-stock and cooperative banks while supporting the view that a more ad hoc perspective on the best models and practices for each type of institutional setting would be preferable. In particular, the study reveals how board education’s effects on bank risk-taking should be carefully monitored.

Through a mediation framework, this study provides empirical evidence on the relationship between bank institutional setting (by distinguishing between cooperative and joint-stock banks) and risk-taking behavior by exploring the underlying mechanisms at the board level, which is novel in the literature.