Market Discipline and Incentive Problems in Conglomerate Firms with Applications to Banking

Boot, Arnoud W. A.; Schmeits, Anjolein

doi:10.1006/jfin.2000.0287

Cited by 163 publications

(86 citation statements)

References 27 publications

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“…Thus, that stability of the banks has an inverse relationship. This result deviate from most literature (Bourgain et al;2012, Nier and Baumann;2006 and Boot and Schmeits;2000) but may agree with Barth and Landsman (2010) who propose that the necessary requirement for bank stability may transcend or not be the same as requirement for quality accounting standard. Also the level of the financial market efficiency in Africa may have led to the result.…”

Section: Discussion Of Resultscontrasting

confidence: 92%

Information Disclosure and Bank Stability; Evidence From Sub-Saharan Africa

Boateng¹

2016

Proceedings of the 6th Economic &Amp; Finance Conference

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Abstract:The heavily dependence of virtually all economies on banks for their financial intermediation cannot be overemphasize. 2007 -2012. This study aims to contribute to the debate by focusing of quality corporate governance measures and financial disclosure effect on bank stability. The paper examines the uniqueness of the banking sector in term of corporate governance and financial disclosures with the aim to establish the appropriate governance measures to enhance disclosure and bank stability for policy direction. Keywords:Corporate governance, Information Disclosure, Bank Stability, Sub-Saharan Africa 68 http://www.iises.net/proceedings/6th-economics-finance-conference-oecd-headquarters-paris/front-page Background and MotivationCorporate disclosure has gain prominence in public policy discussion as result of financial scandals recorded in the case of Enron, WorldCom, Lehman Brothers Group and the financial crisis in the year -2008 (S&P, 2008 and Erkens and Hung, 2012. This crisis severely dented confidence in financial disclosures in the financial markets which account for tougher regulatory reforms corporate disclosure practices (Sarbanes-Oxley Act of -SOX, King Reports (2002).The impact of corporate disclosure on bank stability has always been an issue of concern among academics and policy makers. However, this topic has been intensified after the global financial crisis, where academics as well as policy makers are interrogating to what extent corporate disclosure could have improve monitoring in an ever increasing and complex financial market to attain market stability. The aftermath of the global financial crisis reveals that banks continue to find new ways to seek out profit using high risk products and instruments (Stephanou, 2010). While bank regulatory agencies are primarily responsible for monitoring and regulating bank risk, improving corporate disclosure can ignite market disciplinary measures to control banks risk taking behavior.The stability of banking system is critical to the well-functioning of the Sub-Saharan Africa economies. As most economies rely on the banking sector for capital in almost all economic activity due to the marginal development of the financial market. The sector is characterize with uncertain financial environment, high inadequate information market participant will have to deal with which exacerbates the risk taking behavior among the banking industry players (Vives, 2006, Honohan and Beck, 2007and Beck et al., 2011. In contrast with the advanced economies, there are structural weaknesses of the financial environment, low quality of accountancy data, inadequate of auditing agencies, hitches in accounting and auditing procedures and difficulty in the implementation of sophisticated techniques in addressing the structural challenges. Moreover most of the countries within which these banks operate are in their early stages of financial development, weak legal and regulatory environment. In spite of the enumerated structural defect, the stability of the banking sec...

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Section: Discussion Of Resultscontrasting

confidence: 92%

Information Disclosure and Bank Stability; Evidence From Sub-Saharan Africa

Boateng¹

2016

Proceedings of the 6th Economic &Amp; Finance Conference

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“…Branching, entry, and asset investment restrictions often encourage focus, while supervisors tend to encourage diversification to reduce risks. 2 On the other side, proponents of focus argue that diversified banks can suffer from diluting the comparative advantage of management by going beyond their existing expertise (Klein and Saidenberg (1998)), diversification-inducing competition (Winton (1999)), and increased agency costs resulting from value-decreasing activities of 2 Diversified financial institutions may also reduce the expected costs of financial distress or bankruptcy by lowering risks through spreading operations across different products or economic environments (Boot and Schmeits (2000)). In addition, geographically diversified firms may obtain tax benefits by transferring income from high tax areas to low tax areas (Iskandar-Datta and McLaughlin (2005)).…”

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confidence: 99%

The Effects of Focus versus Diversification on Bank Performance: Evidence from Chinese Banks

2010

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This paper investigates the effects of focus versus diversification on bank performance using data on Chinese banks during the 1996-2006 period. We construct a new measure, economies of diversification, and compare the results to those of the more conventional focus index, which is based on the sum of squares of shares in different products or regions. Diversification is captured in four dimensions: loans, deposits, assets, and geography. We find that all four dimensions of diversification are associated with reduced profits and higher costs. These results are robust regardless of alternative measures of diversification and performance. Furthermore, we observe that banks with foreign ownership (both majority and minority ownership) and banks with conglomerate affiliation -are associated with fewer diseconomies of diversification, suggesting that foreign ownership and conglomerate affiliation play an important mitigating role. This analysis may provide important implications for bank managers and regulators in China as well as in other emerging economies.

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“…Boot and Schmeits (1998) study this decision. They characterize the conglomeration decision as a tradeoff between the risk-reduction benefit of diversification and the cost of weaker incentives.…”

Section: Risk Management Information Systems and The Organization Of mentioning

confidence: 99%

The Implications of Risk Management Information Systems for the Organization of Financial Firms

Gibson

1999

SSRN Journal

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Financial dealer firms have invested heavily in recent years to develop information systems for risk measurement. I take it as given that technological progress is likely to continue at a rapid pace, making it less expensive for financial firms to assemble risk information. I look beyond questions of risk measurement methodology to investigate the implications of risk management information systems. By examining several theoretical models of the firm in the presence of asymmetric information, I explore how a financial firm's capital budgeting, incentive compensation, capital structure, and risk management activities are likely to change as it becomes less costly to assemble risk information. I also explore the likely effects of the falling cost of assembling risk information on a financial firm's organizational structure. Two common themes emerge: centralization within the firm and increased disclosure of risk information outside the firm are both likely to increase.

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Market Discipline and Incentive Problems in Conglomerate Firms with Applications to Banking

Cited by 163 publications

References 27 publications

Information Disclosure and Bank Stability; Evidence From Sub-Saharan Africa

Information Disclosure and Bank Stability; Evidence From Sub-Saharan Africa

The Effects of Focus versus Diversification on Bank Performance: Evidence from Chinese Banks

The Implications of Risk Management Information Systems for the Organization of Financial Firms

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