Disciplinary tools and bank risk exposure

Mamiza Haq*, Robert Faff, Rama Seth, Sunil Mohanty

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

17 Citations (Scopus)

Abstract

We investigate the impact of bank capital, market discipline and charter value as bank disciplinary tools on both bank equity risk (systematic risk, total risk, and idiosyncratic risk) and default risk/credit risk. We analyse 218 listed banks across 15 Asia-Pacific countries, and find that bank risk is positively related to bank capital and negatively related to charter value. Consistent with Pillar 3, Basel II and Basel III, we also find that bank risk is negatively associated with market discipline. Further, our results provide evidence that market discipline complements bank capital while market discipline substitutes bank self-disciplinary tools such as charter value. Finally, the magnitude of the charter value coefficient fall dramatically with the global financial crisis across all risk measures. The results are robust to different estimation specifications.

Original languageEnglish
Pages (from-to)37-64
Number of pages28
JournalPacific Basin Finance Journal
Volume26
DOIs
Publication statusPublished - Jan 2014
Externally publishedYes

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