Investor Protection, Regulation and Bank Risk-Taking Behavior

North American Journal of Economics and Finance, 51,101051

Posted: 15 Apr 2020

See all articles by João C. A. Teixeira

João C. A. Teixeira

University of the Azores - School of Business and Economics

Tiago F. A. Matos

affiliation not provided to SSRN

Gui L. P. da Costa

affiliation not provided to SSRN

Mario Fortuna

Independent

Date Written: August 20, 2019

Abstract

This paper examines whether the influence of investor protection on banks’ risk is channeled through banking regulation, and vice-versa, using panel data from a sample of 567 European and US banks for the 2004–2015 period. As banking regulatory factors, we consider capital stringency, activity restrictions and private monitoring, whereas as investor protection factors, we consider the level of shareholder and creditor protection. We find that banking regulation moderates the positive direct influence of investor protection on banks’ risk, while investor protection reinforces the negative direct influence of banking regulation on risk. Moreover, we show that the negative effect of national regulations on banks’ risk is more pronounced during systemic crisis years. Finally, taking into account market competition, we argue that private monitoring only has a direct effect on banks’ risk, whereas the effects of capital stringency and activity restriction are channeled through market competition.

Keywords: Bank risk, Investor protection, Property rights, Bank regulation

JEL Classification: G01, G21, G28, G32, P26

Suggested Citation

Teixeira, João C. A. and Matos, Tiago F. A. and da Costa, Gui L. P. and Fortuna, Mario, Investor Protection, Regulation and Bank Risk-Taking Behavior (August 20, 2019). North American Journal of Economics and Finance, 51,101051, Available at SSRN: https://ssrn.com/abstract=3558443

João C. A. Teixeira (Contact Author)

University of the Azores - School of Business and Economics ( email )

Rua Mãe de Deus, s/n
9501-801 Ponta Delgada Azores
Portugal

Tiago F. A. Matos

affiliation not provided to SSRN

Gui L. P. Da Costa

affiliation not provided to SSRN

Mario Fortuna

Independent

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
116
PlumX Metrics