scholarly journals Capital Flows and Bank Risk-Taking Behavior: Evidence From Indonesia

2020 ◽  
Vol 9 (s1) ◽  
pp. 33-53
Author(s):  
Bayront Yudit Rumondor ◽  
Pakasa Bary
Keyword(s):  
Risk Taking ◽  
Capital Flows ◽  
Emerging Market ◽  
Capital Inflows ◽  
Bank Risk ◽  
Portfolio Investment ◽  
Industry Level ◽  
Country Level ◽  
Risk Taking Behavior ◽  
The Impact

AbstractThis paper investigates the impact of capital flows on bank risk-taking behavior. It undertakes two levels of empirical estimations, namely (i) single-country industry-level; and (ii) multi-country industry-level estimations, covering emerging market economies. The results suggest that capital inflows, in the form of portfolio investment, is significant in raising risk-taking behavior. Large banks are less aggressive in their risk-taking behavior vis-à-vis smaller banks. Such impact of portfolio investment on risk-taking behavior is also shown in the multi-country level estimates.

Capital regulation, competition and risk-taking behavior of Indian banks in a simultaneous approach

2018 ◽  
Vol 44 (4) ◽  
pp. 459-477 ◽  
Author(s):  
Santi Gopal Maji ◽  
Preeti Hazarika
Keyword(s):  
Human Capital ◽  
Risk Taking ◽  
Value Added ◽  
Capital Adequacy ◽  
Bank Risk ◽  
Capital Regulation ◽  
Content Type ◽  
Risk Taking Behavior ◽  
Indian Banks ◽  
The Impact

Purpose The purpose of this paper is to investigate the association between capital regulation and risk-taking behavior of Indian banks after incorporating the influence of competition. Further, the study intends to enrich the existing literature by providing empirical evidence on the role of human resources in managing risk along with the influence of other bank specific and macroeconomic variables. Design/methodology/approach Secondary data on 39 listed Indian commercial banks are collected from “Capitaline Plus” corporate data database for a period of 15 years. Capital is measured by capital adequacy ratio as defined by the regulators, and two definitions of risk – credit risk and insolvency risk – are employed. Competition is measured by Herfindahl-Hirschman deposits index, concentration ratio and H-statistic. The value-added intellectual coefficient model is employed to compute human capital efficiency (HCE). Three-stage least squares technique in a simultaneous equation framework is used to estimate the coefficients. Findings The study finds that absolute level of regulatory capital and bank risk are positively associated, although the influence of capital on risk is not statistically significant. The influence of competition on risk is negative for all the models, which supports the “competition stability” view. The impact of human capital on bank risk is also negative for all cases. Practical implications The findings of the study are useful for the decision makers in several ways based on the inverse influence of competition and HCE on bank risk. Further, the observed positive association between capital and risk indicates that the capital regulation is not sufficient to enhance the stability in the banking sector. Originality/value This is the first study in the Indian context that incorporates the competition in the banking industry as an explanatory variable in the extant bank capital and risk relationship.

Intellectual capital, bank stability and risk-taking: evidence from Asian emerging markets

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Tamanna Dalwai ◽  
Dharmendra Singh ◽  
Ananda S.
Keyword(s):  
Emerging Markets ◽  
Intellectual Capital ◽  
Risk Taking ◽  
Bank Risk ◽  
Bank Stability ◽  
Gmm Estimation ◽  
Content Type ◽  
Risk Taking Behavior ◽  
Asian Emerging Markets ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of intellectual capital (IC) efficiency on the banks’ risk-taking and stability of Asian emerging markets. Design/methodology/approach This study uses a sample of 204 listed banks from 12 Asian emerging countries for the period 2010 to 2019. Data were analyzed using Ordinary Least Squares regression and checked for robustness using system generalized methods moment (GMM) estimation. The dependent variable of bank stability is measured using Z-score-based return on assets (ROA) and return on equity (ROE). The second dependent variable of bank risk is proxied by the standard deviation of ROA, ROE, non-performing loans and loan loss provision. Findings The results suggest the IC efficiency has no association with bank risk-taking and stability. The findings lend no support to the resource-based theory. The robustness of this result is confirmed by the system GMM estimation. However, support is found for the competition fragility view as high market power is associated with low risk-taking. The IC subcomponents, human capital efficiency (HCE) report a negative coefficient for bank risk-taking thereby having no support for the hypothesized relationships. Diversified banks with a higher deposit to total asset ratio resort to high risk-taking. Research limitations/implications IC efficiency does not have an impact on the bank’s risk-taking behavior and stability for Asian banks. Managers can use these findings to improve their IC and boost investor confidence. Regulatory authorities should increase its monitoring function of banks when the GDP decreases as risk-taking behavior are galvanized during this period. Originality/value This research is one of the first to provide empirical evidence of IC efficiency’s relationship with bank stability and bank risk-taking. The implications are useful for policymakers, managers and governing bodies to enhance the banks’ IC efficiency.

scholarly journals The Impact of Cross-Border Capital Flows on the Chinese Banking System

SAGE Open ◽  
2021 ◽  
Vol 11 (2) ◽  
pp. 215824402110214
Author(s):  
Yang Zhao ◽  
Zichun Xu
Keyword(s):  
Risk Taking ◽  
Capital Flows ◽  
Commercial Banks ◽  
Generalized Method Of Moments ◽  
Bank Risk ◽  
Capital Account ◽  
Political Condition ◽  
Positive Effects ◽  
Cross Border ◽  
The Impact

With the accelerated opening of China’s capital account, China’s banking sector is exposed to the impacts of cross-border capital flows. This article explores the impact of cross-border capital flows on banks’ risk-taking in China. Employing bank-level data of 50 Chinese commercial banks from 2005 to 2018 and a sys-GMM (system generalized method of moments) estimation method, we show that cross-border capital flows are positively associated with the risk-taking of Chinese commercial banks. Moreover, banks that are larger, more capital adequate, and more profitable are more sensitive to the degree of capital account openness toward risk-taking, and the capital account openness has the greatest influence on the profitability-driven bank risk-taking. Nevertheless, such positive effects of capital account openness on bank risk-taking may be weakened under bad macro-environment, indicated by low economic growth, poor legitimate law enforcement, and unstable political condition.

scholarly journals Dynamic modeling of macroeconomic factors influence on portfolio investment flows in countries with emerging markets

2021 ◽  
Vol 13 (3) ◽  
pp. 359-380
Author(s):  
Svetlana V. Doroshenko ◽  
◽  
Evgenya V. Lapteva ◽  
◽  
Keyword(s):  
Developing Countries ◽  
Emerging Markets ◽  
Capital Flows ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Political Stability ◽  
Portfolio Investment ◽  
Macroeconomic Factors ◽  
The Difference ◽  
The Impact

Introduction: the impact of pull or push factors on capital flows has become an especially relevant issue due to the increasing importance of emerging countries in the growth of world welfare. Objectives: to identify the impact of global and domestic economic factors on portfolio capital flows to emerging markets. Methods: the work is based on applied statistical and econometric methods of regression analysis. Panel regression estimation was carried out by two-step least squares methods (instrumental variables), generalized method of moments according to the methodology of Arellano–Bond and Arellano–Bover/Blundell– Bond. The study contains a total of 2,240 observations. Results: two hypotheses were put forward: (1) global indicators of USA monetary policy have a greater impact on the inflow of portfolio investments in developing countries in crisis years than domestic factors; (2) the difference between the receiving country’s interest rate and the US rate has the most significant effect on the inflow of portfolio investment to emerging market economies among the domestic factors. The impact of the factors on portfolio investment flows was assessed using macroeconomic data for 28 developing countries, based on quarterly observations for the period 2000–2019. Conclusions: there is empirical evidence that global factors are more important in times of crisis than specific country ones. The second hypothesis was not confirmed. It was revealed that the flows of portfolio capital are most influenced by the level of international reserves and domestic political stability in the country.

scholarly journals Does Trade Openness Affect Bank Risk-Taking Behavior? Evidence from BRICS Countries

Economies ◽  
2020 ◽  
Vol 8 (3) ◽  
pp. 75 ◽  
Author(s):  
Mohammed Mizanur Rahman ◽  
Munni Begum ◽  
Badar Nadeem Ashraf ◽  
Md. Abdul Kaium Masud
Keyword(s):  
Risk Taking ◽  
Fixed Effects ◽  
Trade Openness ◽  
Least Square ◽  
Estimation Methods ◽  
Bank Risk ◽  
Brics Countries ◽  
Long Run ◽  
Risk Taking Behavior ◽  
The Impact

In this paper, we examine the impact of trade openness on bank risk-taking behavior employing a panel dataset of 899 banks from the BRICS (i.e., Brazil, Russia, India, China, and South Africa) countries over the period 2000–2017. We find that higher trade openness lowers bank risk-taking. Our results are robust when we use alternative proxies of trade openness and bank risk-taking, estimate country-wise regressions, or use alternative estimation methods such as system Generalized Methods of Moments (GMM), fixed effects, pooled Ordinary Least Square (OLS), and Vector Error Correction Model (VECM) models. We also observe higher trade openness decreases bank risk-taking in both the short and long run. Moreover, banks in more open countries perform relatively better during the crisis period further signifying the diversification benefits of openness. Together, our findings imply the beneficial impact of trade openness for financial sector stability.

scholarly journals The Impact of International Capital Flows on Central and Eastern European Countries’ Investments, Savings, Consumption, and Current Accounts

2020 ◽  
Vol 31 (4) ◽  
pp. 450-460
Author(s):  
Laura Vilutiene ◽  
Daiva Dumciuviene
Keyword(s):  
Capital Flows ◽  
Emerging Market ◽  
Developed Countries ◽  
International Capital Flows ◽  
Capital Inflows ◽  
Eastern European ◽  
International Capital ◽  
Domestic Savings ◽  
National Economies ◽  
The Impact

Capital flows have been analysed from various perspectives and yet no consensus has been reached about the impact of international capital flows on national economies. The main aim of this paper is to present the theoretical aspects of the effect of international capital flows on national economies, and to analyse the impact of international capital flows on Central and Eastern European (CEE) countries’ domestic savings, investments, consumption, and current accounts. During the investigation, the latest studies on international capital flows were reviewed and systemised, 11 CEE countries’ main indicators from across a 10-years period were collected, and computed coefficients, which represent the change associated with a variation in clusters’ capital inflows, equal to 1 percent change of GDP, were analysed. The analyses conducted show that capital flows have an impact on countries’ economies. The main findings are:  first, domestic savings and consumption are seen to have been more strongly associated with capital inflows than investments in developed countries. Second, the relationship between investments, domestic savings, consumption and one inflow in portfolio flows would be negative, in both highly developed countries and emerging market countries. Third, where positive inflows in net and gross capital are concerned, foreign direct investments would have an insignificant positive impact on current accounts in highly developed countries and developed countries but a negative impact in emerging market countries. By achieving economic growth dynamics within a specific country, a wide evaluation of a country’s capital flows can be performed, and control of capital flows gained, by applying different assessment models.

scholarly journals Do foreign and state banks take more risk?

2018 ◽  
Vol 13 (4) ◽  
pp. 96-102
Author(s):  
Fitri Ismiyanti ◽  
Afwadi Rahman ◽  
Putu Anom Mahadwartha
Keyword(s):  
Risk Taking ◽  
Foreign Ownership ◽  
Bank Risk ◽  
Z Score ◽  
Government Ownership ◽  
Increase Risk ◽  
Risk Taking Behavior ◽  
Barrier To Entry ◽  
Low Efficiency ◽  
The Impact

This paper addresses the impact of foreign ownership, government ownership, efficiency and income diversification on the risk-taking behavior of banks in Indonesia. This research uses Z-Score to measure bank risk-taking behavior. Z-score proxies probability bank’s loss that is greater than its equity. Despite their profit, bank may suffer financial insolvency when taking too much risk. This study used a sample of 44 banks in Indonesia over the 2011–2016 period with purposive sampling method. Based on the result of the research, it can be concluded that foreign ownership can increase bank risk-taking behavior due to the barrier to entry in the form of deficiency of quality information of the borrower so that it has an impact on the increase of non-performing loan ratio. While government ownership can also increase risk-taking behavior, because banks are used by politicians to pursue political goals that cause banks to take high-risk projects with low profits. In addition, the results of this study also show that banks with low efficiency tend to increase the risk-taking behavior.

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

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