Information Disclosure, Market Discipline and the Management of Bank Capital: Evidence from the Chinese Financial Sector

Wu, Yue; Bowe, Michael

doi:10.1007/s10693-010-0091-6

Cited by 15 publications

(25 citation statements)

References 52 publications

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“…To empirically test this hypothesis, a model that represents a general relationship between bank capital, bank-specific variables, market discipline measures and country-specific variables is formulated following by Nier and Baumann (2006), Wu and Bowe (2010). The model is given as:…”

Section: Methodsmentioning

confidence: 99%

“…Banks also hold excess capital in order not to incur the costs associated with market discipline (Flannery and Rangan, 2008;Nier and Baumann, 2006;Wu and Bowe, 2010). In line with studies by Aggarwal and Jacques (1998), Jacques and Nigro (1997), Nier and Baumann (2006), Wu and Bowe (2010), the ratio of bank capital to risk-weighted assets (RCWA) based on the Basel criteria is used as a measure of banks' capital.…”

Section: Dependent Variablementioning

confidence: 99%

“…Based on Nier and Baumann (2006), Wu and Bowe (2010), we used two bankspecific variables to measure the strength of market discipline.…”

Section: Market Discipline Variablesmentioning

confidence: 99%

“…In the context of East Asia, studies by Hosono et al (2005) and Hamid (2014) confirm that depositors discipline banks by withdrawing their funds from the weaker ones. Nevertheless, with the exception of Nier and Baumann (2006) and Wu and Bowe (2010), not many studies have empirically tested the ability of market discipline in influencing banks' risk taking behavior. The latter study is focused on China while the former is focused on developed countries.…”

mentioning

confidence: 99%

“…The "political" theory links government ownership of institutions to inefficient allocation of resources allocation. Existing studies confirm that government ownership is associated to lower performance (La Porta et al, 2002), lower efficiency (Williams and Nguyen, 2005) and higher risk (Wu and Bowe, 2010). Given that government owned banks are more likely to be bailed out in the event of a financial distress compared to others, they may be less sensitive to external pressure.…”

mentioning

confidence: 99%

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Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector

Hamid

Yunus

2017

SSRN Journal

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The third pillar of the Basel II highlights the role of market discipline in easing the existing pressure on traditional monitoring measures like capital requirement and government supervision. This study test the effectiveness of market discipline in inducing prudential risk management practices among the East Asian banks over the 1995 to 2005 period. Market discipline is measured using information disclosure and interbank deposit holdings. We find that only the latter is an effective market discipline tool. However, the former becomes effective when market concentration is higher. We find that government owned, foreign owned and recapilatised banks are subject to market disciplining when disclosure in taken account but the opposite is true when interbank deposits is taken into account. Finally, we find that banks that disclose more risk related information hold more capital against their non-performing loan. The implications of the findings are discussed.

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Section: Methodsmentioning

confidence: 99%

Section: Dependent Variablementioning

confidence: 99%

“…Based on Nier and Baumann (2006), Wu and Bowe (2010), we used two bankspecific variables to measure the strength of market discipline.…”

Section: Market Discipline Variablesmentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

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Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector

Hamid

Yunus

2017

SSRN Journal

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Market discipline and the risk‐taking behaviour of banks in India

2023

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After the financial crisis, the Indian banking system has accumulated a mountain of bad loans which has crippled the banking sector and halted the credit flow to the industry. Several immediate causes for the bad loan crisis have been pointed out. However, poor market discipline, the ultimate root cause of the bad loan crisis, has not been paid adequate attention. This study seeks to investigate how effectively the market disciplinary forces, captured through information disclosure, interbank deposits, concentration and ownership structure, incentivise the Indian banks to adopt prudential risk management by enhancing their risk‐weighted capital ratio. The findings of the study show that information disclosure and interbank deposits do not induce prudential risk behaviour among banks in India. However, with increasing concentration in the banking sector, a higher level of information disclosure effectively induces banks to maintain higher capital ratios, but inter‐bank deposits do not have any significant effect on bank capital. We also observe that government banks maintain lower capital ratios as compared to private banks indicating government banks' higher expectation of government bailout.

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The Impact of Pillar 3 Disclosure Requirements on Bank Safety

Vauhkonen

2011

J Financ Serv Res

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We consider the impact of a mandatory information disclosure on bank safety in a spatial model of banking competition, in which a bank's probability of success depends on the quality of its risk measurement and management systems. Under Basel capital requirements, this quality is at least partially disclosed to market participants by the Pillar 3 disclosures. We show that the regulator can improve the safety of the banking system by tightening the disclosure requirements. Furthermore, the stricter the disclosure requirements are the bigger is a positive impact of an increase in capital requirements on bank safety.

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Information Disclosure, Market Discipline and the Management of Bank Capital: Evidence from the Chinese Financial Sector

Abstract: Market discipline, Capital, Risk management, Chinese banking, G21, G28,

Cited by 15 publications

References 52 publications

Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector

Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector

Market discipline and the risk‐taking behaviour of banks in India

The Impact of Pillar 3 Disclosure Requirements on Bank Safety

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