On the relationship among efficiency, capitalization and risk: does management matter in local banking market?

Abstract

By employing a Granger causality methodology in a panel data framework, this article explores the relationship among efficiency, capitalization and credit risk within the local Italian banking system. Focusing the attention on cooperative banks, we specifically test whether managers take more risks in highly concentrated markets (i.e. monopoly) than in partially competitive markets (i.e. duopoly). The evidence shows that in more concentrated markets, management efficiency generates a decrease in risk-taking (rejecting the bad management hypothesis) with respect to the partially competitive markets. Results are consistent with the idea that banks with less local competition are able to increase their profits by indulging more freely in rent-seeking behaviour, minimizing their risk-taking and, consequently, improving the quality of their assets through additional screening processes. The financial crisis does not seem to affect the conduct of management in terms of bank investment decisions and risk-taking. A series of robustness tests generally confirms our findings

The influence of liquidity risk on efficiency in rural banks: the moderating role of interbank borrowing fund

“…Increasing of interest rate will increase bank's cost and decrease efficiency (Sun & Chang, 2011). Moreover, some past studies found that credit risk has negative rekationship with efficiency (Chen et al, 2015;Nguyen & Nghiem, 2015;Barra et al, 2016;Mosko & Bozdo, 2016). Meanwhile, positive relationship between credit risk and efficiency also had been revealed by and Saeed and Izzeldin (2016).…”

Basel accords and banking inefficiency: Evidence from the Italian local market

“…We follow Destefanis et al (2014), Barra, Bimonte, and Zotti (2016) and Barra and Zotti (2019) for the identification of the market structure in which banks operate. Specifically, the following market structures have been identified: (1) monopolistic (MON): municipalities where there is only one bank head‐office; (2) duopolistic (DUO): municipalities where there are two head‐offices; (3) oligopolistic case (OLIG): municipalities where there are three head‐offices; (4) competitive (COMP): municipalities in which there are more than three head‐offices.…”

“…Relatively instead to the computation of bank efficiency, departing from the asset model of Sealey Jr. and Lindley (1977), the choice of input and output vectors relies on a large economic literature which has been devoted to assess the efficiency of banking institutions (Mamatzakis et al, 2021; Mostak Ahamed et al, 2021; Prior et al, 2019; Tsionas & Andrikopoulos, 2020; Tsionas & Philippas, 2021) and on a stream of recent contributions which have dealt with the analysis of the efficiency of the Italian banking system (Amendola et al, 2021; Barra et al, 2016,b; Barra & Ruggiero, 2021b; Barra & Zotti, 2019; Coccorese & Ferri, 2020). Following this approach, 7 the output vector (y) comprises customer loans (y 1 ); services (administrative) or non‐traditional activities, that is, commission income and other operating income (y 2 ); and securities (y 3 ), that is, bank loans, Treasury bills, bonds and other debt less bonds and debt securities held by banks and other financial institutions.…”

“…We follow Destefanis et al (2014), Barra, Bimonte, and Zotti (2016) and Barra and Zotti (2019) for the identification of the market structure in which banks operate. Specifically, the following market structures have been identified: (1) monopolistic (MON): municipalities where there is only one bank head-office;…”

Financial stability and local economic development: the experience of Italian labour market areas

“…This is consistent with the idea that banks with less local competition are able to increase their profits by indulging more freely in rent-seeking behaviour, minimizing their risk-taking. Therefore, the quality of their assets improves through additional screening processes (Barra et al 2016a).…”