Financial Frictions, Bank Efficiency and Risk: Evidence from the Eurozone

29 Pages Posted: 16 Mar 2011

See all articles by Georgios E. Chortareas

Georgios E. Chortareas

University of Athens - Faculty of Economics; University of Essex - Department of Accounting, Finance & Management; King's College London

Claudia Girardone

University of Essex - Essex Business School

Alexia Ventouri

affiliation not provided to SSRN

Date Written: March 14, 2011

Abstract

This paper employs a simultaneous equations approach to investigate the dynamics between financial frictions, efficiency and risk for eurozone's commercial banks. We consider two related channels through which financial frictions may arise: informational and market structure imperfections, and allow for a possible reverse causation from efficiency to banks asset quality. The findings validate the presence of both channels of financial frictions and are consistent with the efficiency-lending quality hypothesis that low efficiency signals poor asset quality loans. Finally, our findings suggest that policies aimed at constraining banks degree of openness may ultimately direct management choices towards riskier investments.

Keywords: financial frictions, efficiency, risk, asset quality, Eurozone banks, simultaneous equations models

Suggested Citation

Chortareas, Georgios and Girardone, Claudia and Ventouri, Alexia, Financial Frictions, Bank Efficiency and Risk: Evidence from the Eurozone (March 14, 2011). Journal of Business Finance & Accounting, Vol. 38, Issue 1-2, pp. 259-287, 2011. Available at SSRN: https://ssrn.com/abstract=1786246 or http://dx.doi.org/10.1111/j.1468-5957.2010.02226.x

Georgios Chortareas (Contact Author)

University of Athens - Faculty of Economics ( email )

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University of Essex - Department of Accounting, Finance & Management ( email )

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King's College London ( email )

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London, England WC2R 2LS
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Claudia Girardone

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
+44 1206874156 (Phone)
+44 1206873429 (Fax)

HOME PAGE: http://www.essex.ac.uk/ebs/staff/profile.aspx?ID=1045

Alexia Ventouri

affiliation not provided to SSRN

No Address Available

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