Disciplinary Tools and Bank Risk Exposure

Pacific-Basin Finance Journal 26 (2014) 37–64, Forthcoming

28 Pages Posted: 16 Dec 2013

See all articles by Mamiza Haq

Mamiza Haq

University of Queensland - Finance; Financial Research Network (FIRN)

Robert W. Faff

University of Queensland

Rama Seth

Indian Institute of Management (IIM), Kolkata

Sunil Mohanty

University of St. Thomas - Opus College of Business

Date Written: October 29, 2013

Abstract

We investigate the impact of bank capital, market discipline and charter value as bank disciplinary tools on both bank equity risk (systematic risk, total risk, and idiosyncratic risk) and default risk/credit risk. We analyse 218 listed banks across 15 Asia-Pacific countries, and find that bank risk is positively related to bank capital and negatively related to charter value. Consistent with Pillar 3, Basel II and Basel III, we also find that bank risk is negatively associated with market discipline. Further, our results provide evidence that market discipline complements bank capital while market discipline substitutes bank self-disciplinary tools such as charter value. Finally, the magnitude of the charter value coefficient fall dramatically with the global financial crisis across all risk measures. The results are robust to different estimation specifications.

Keywords: Bank risk, bank capital, charter value

JEL Classification: G21, G32

Suggested Citation

Haq, Mamiza and Faff, Robert W. and Seth, Rama and Mohanty, Sunil K., Disciplinary Tools and Bank Risk Exposure (October 29, 2013). Pacific-Basin Finance Journal 26 (2014) 37–64, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2367961

Mamiza Haq (Contact Author)

University of Queensland - Finance ( email )

Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Rama Seth

Indian Institute of Management (IIM), Kolkata ( email )

Kolkata, West Bengal 700104
India

Sunil K. Mohanty

University of St. Thomas - Opus College of Business ( email )

1000 LaSalle Avenue
TMH 443
Minneapolis, MN 55403
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
43
Abstract Views
331
PlumX Metrics