Financial guarantors’ executive compensation, charter value and risk-taking

Lai, Van Son; Soumaré, Issouf; Sun, Yanan

doi:10.1016/j.ribaf.2012.03.002

Cited by 2 publications

(1 citation statement)

References 22 publications

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“…Allen, Carletti, Goldstein, and Leonello (2017) challenge this conventional idea by reviewing the role that these underlying assumptions play in the assessment of the desirability and effectiveness of government guarantees; they propose a new framework within which to consider them and conclude that new research is needed to evaluate the implications on banks and the financial system as a whole. Moreover, the literature on principal-agent problem (conflict of interest between the shareholders and the manager) underlines that moral hazard causes the manager (and not the shareholders) to select a high level of risk (see, for instance, Lai, Soumaré, & Sun, 2012). Furthermore, Grosse (2017) reports that most of the large US banks that were bailed out during the financial crisis also forced out their chief executives and usually several other members of top management as a result.…”

Section: Theoretical Papers On Bail-inmentioning

confidence: 99%

European Significant Bank Stock Market Volatility: Is there a Bail-In Effect?

Leone¹,

Porretta²,

Riccetti³

2019

IJBM

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In 2016 the “bail-in” tool, set by the European Bank Recovery and Resolution Directive (BRRD), started to enter into force: shareholders of European banks lose their money in the case of bank rescue. Before the “bail-in” mechanism was introduced, governments often performed bail-out of distressed banks. The larger risk born by shareholders can be observed in the growth of stock market volatility. We implement a panel data analysis on a sample of large European banks and find that in 2016 stock market volatility changes in a way that is theoretically consistent with the introduction of the “bail-in”. Moreover, Italy shows an even higher volatility, probably due to retail investors owning bank shares, who could have understood the risk only after the burden sharing of four Italian banks in November 2015. These findings can be a warning about market efficiency, with implications for the systemic risk of a “bail-in” procedure.

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Section: Theoretical Papers On Bail-inmentioning

confidence: 99%

European Significant Bank Stock Market Volatility: Is there a Bail-In Effect?

Leone¹,

Porretta²,

Riccetti³

2019

IJBM

View full text Add to dashboard Cite

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What Risks for the Profitability of the Banking Sector

Gargouri¹,

Boujelben²

2014

IJEF

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This article attempts to determine the reasons of banks' failure relying heavily on the relationship between corporate governance of banks, the value of charter and risk taking. It focuses on the concept of market discipline in the banking sector. In general, the bank faces three problems: the failure of its client, increased competition and adaptation to new information and communication technologies. Our task is to show the impact of excessive risk-taking on bank profitability. It seems essential to take into account the consequences of strategic interactions of the efficiency of the banking system. The question is how we can control the level of risk-taking in the banking sector.Our study focuses on the banking markets of seven developed countries. Our sample consists of 41 banks over the period 2000-2012. It is important to determine the disciplinary role of the shareholder in examining the effect of charter value on risk-taking by banks. Our goal is to show that the charter value can be considered as a factor of leaders' self-discipline towards risk taking. We tested the model of two simultaneous equations (3SLS) and we found that the value of charter plays a role of self-discipline only for risk capital and assets. This charter value increases the risk of insolvency. However it has no effect on the credit risk.

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Financial guarantors’ executive compensation, charter value and risk-taking

Cited by 2 publications

References 22 publications

European Significant Bank Stock Market Volatility: Is there a Bail-In Effect?

European Significant Bank Stock Market Volatility: Is there a Bail-In Effect?

What Risks for the Profitability of the Banking Sector

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