A Theoretical and Empirical Assessment of Bank Risk-Shifting Behavior

31 Pages Posted: 15 Feb 2007

See all articles by James R. Barth

James R. Barth

Auburn University; Milken Institute

Mark Bertus

Auburn University

Jiang Hai

Jinan University - Department & Institute of Finance

Triphon Phumiwasana

Milken Institute

Date Written: January 2007

Abstract

Banks are important for mobilizing savings and then channeling those funds to productive investment projects. While providing these and other services that contribute to economic growth and development, banks take on various types of risks with the expectation that the return they receive will compensate for the risks. This paper theoretically models and empirically tests the extent to which information asymmetry between bank owners and depositors induces risk-shifting behavior that allows for higher bank net interest margins. The empirical results support the theoretical hypothesis that the greater the degree of information asymmetry the higher net interest margins base upon a sample of 3,115 banks in 98 countries.

Keywords: Global Banking Systems, Risk-shifting, Basel, Market Discipline

JEL Classification: G21, G28, G15

Suggested Citation

Barth, James R. and Bertus, Mark and Hai, Jiang and Phumiwasana, Triphon, A Theoretical and Empirical Assessment of Bank Risk-Shifting Behavior (January 2007). Available at SSRN: https://ssrn.com/abstract=962751 or http://dx.doi.org/10.2139/ssrn.962751

James R. Barth

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States
334-844-2469 (Phone)
334-844-4960 (Fax)

Milken Institute ( email )

1250 Fourth Street
Santa Monica, CA 90401
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Mark Bertus (Contact Author)

Auburn University ( email )

415 W Magnolia
Lowder rm 303
Auburn, AL 36849
United States

Jiang Hai

Jinan University - Department & Institute of Finance ( email )

Finance of Department,College of Economics,
Jinan University, Shipai Rd
Guangzhou, Guangdong 510632
China
8620-8522-7861 (Phone)
8620-8522-1521 (Fax)

Triphon Phumiwasana

Milken Institute ( email )

1250 Fourth Street
Santa Monica, CA 90401
United States
310-998-2697 (Phone)

HOME PAGE: http://www.milkeninstitute.org

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