Size, Charter Value and Risk in Banking: An International Perspective

By Gianni De Nicolò. 2000

305 citations recorded by the source corpus.

This paper documents the relationships between bank size and measures of charter value and insolvency risk in a sample of publicly traded banks in 21 industrialized countries for the 1988-1998 period. With the exception of small U.S. bank holding companies, charter values decrease in size and insolvency risk increases in size for most banks in the countries considered. Size-related diversification benefits and/or economies of scale in intermediation are either absent or, if they exist, are more than offset by banks' higher risk taking. Furthermore, banks operating in countries with more developed financial markets exhibit lower insolvency risk, and those operating in countries with either stricter regulation on banks' permissible activities or larger share of bank assets under state ownership exhibit higher insolvency risk. Overall, our evidence is at variance with some broad implications of modern financial intermediation theory, and suggests that absent future structural changes in banking markets of developed countries, bank consolidation is likely to result in an average increase in banks' insolvency risk.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/0a98b8d36217415e17882ed6c97d0af1525c5279

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Citations in the corpus

Banks without Parachutes – Competitive Effects of Government Bail-out Policies (2010, unknown): “The only caveat concerns the modeling of banking competition (see Boyd and De Nicoló (2005)): If there is loan market competition and banks’ behavior is best described by an optimal contracting problem, an increase in the bail-out probability of one bank may make all banks less risky.”
Ownership Structure, Risk and Performance in the European Banking Industry (2007, methodology): “According to Boyd and Graham (1988) and De Nicolò (2001), Insolvency Risk, Z, for bank’ j at time t is measured by:”
Dollarization of bank deposits: Causes and consequences (2005, background): “De Nicoló et al. / Journal of Banking & Finance 29 (2005) 1697–1727”
The impact of government ownership on bank risk (2013, unknown): “One attempt to address this problem is represented by the insolvency risk Z score (De Nicolò, 2001), based on a bank’s leverage and the mean and volatility of its return on assets.”
The Interactional Relationships Between Credit Risk, Liquidity Risk and Bank Profitability in MENA Region (2020, unknown): “Most empirical studies are focussed on the American context (De Nicolo, 2000; Imbierowicz & Rauch, 2014), the European context (Chortareas, Girardone, & Ventouri, 2011; Kim, 2015; Thorsten, Heiko, Thomas, & Natalja, 2009) and Asian countries (Arif & Anees, 2012; Sohaimi, 2013; Tan, 2016; Zolkifli,…”
Effects of culture on firm risk-taking: a cross-country and cross-industry analysis (2012, unknown): “The Z statistic indicates the number of standard deviations that a firm’s losses (negative profits) can increase to deplete equity, making the firm insolvent (De Nicolò 2000).”
International evidence on the impact of regulations and supervision on banks’ technical efficiency: an application of two-stage data envelopment analysis (2007, unknown): “instance, De Nicolo (2000) finds that banks operating in countries with a higher level”
On the implications of market power in banking: Evidence from developing countries (2010, methodology): “The Z-index is allowed to vary across time for each bank following De Nicolò, Bartholomew, Zaman, and Zephirin (2004), and using the following equation:”
Bank Concentration and Fragility. Impact and Mechanics (2005, background): “In contrast, De Nicoló (2000) finds a positive relationship between bank size and the probability that the bank will fail in the United States, Japan, and several European countries.”
Competition in Banking: A Review of the Literature (2004, background): “De Nicolo (2000) examines the relationship between charter value and bank size.”
Bank Competition and Financial Stability : Friends or Foes? (2008, background): “De Nicolo (2000) , on the other hand, finds a positive”
The banking industry in the emerging market economies: Competition, consolidation and systemic stability - an overview (2001, background): “See also Berger et al (1993), Borio and Tsatsaronis (1996), White (1998), Berger et al (1999) and De Nicolo (2000).”
Competition and risk in South East Asian commercial banking (2012, methodology): “…variables derived from various studies on risk, competition and capital regulation in banking (Jagtiani et al., 1995; De Bandt and Davis, 2000; De Nicolo, 2000; Bikker and Haaf, 2002; Claessens and Leaven, 2004; Demirgüc-Kunt et al., 2004; Gelos and Roldos, 2004; Gonzalez, 2005; Beck et al.,…”
Do Banks Benefit from Internationalization? Revisiting the Market Power-Risk Nexus (2013, unknown): “If monitoring and information costs are high, bank risk might increase.”