Financial openness, risk and bank efficiency: Cross-country evidence
By Yun Luo, Sailesh Tanna, Glauco De Vita. 2016
150 citations recorded by the source corpus.
This paper assesses the interrelationship between financial openness, bank risk and bank profit efficiency using a cross-country sample of 2007 commercial banks covering 140 countries over the period 1999–2011. To establish whether the impact of financial openness on both bank risk and profit efficiency occurs directly or through each one of the two bank characteristics (efficiency and risk, respectively), we begin our analysis by investigating the potential reverse Granger causality between profit efficiency and risk using a dynamic simultaneous model via system GMM estimation. We then account explicitly for the role of bank risk in the estimation of bank profit efficiency using stochastic frontier analysis, allowing for the influence of different measures of financial openness and risk alongside other control variables. Our results indicate that financial openness reduces bank profit efficiency directly, not through changes in bank risk. We also find that financial openness increases bank risk indirectly, through the decreased bank profit efficiency channel.
Subfields: Accounting, Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/7dabf6f4fb4d36ee1615231bddbbae4b899b7194
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Citations in the corpus
- The impact of bank capital, bank liquidity and credit risk on profitability in postcrisis period: A comparative study of US and Asia (2019, methodology): “GMM was used in many studies to obtain consistent estimators in banking Ozili (2017); Luo, Tanna, and De Vita (2016); and Jokipii and Milne (2011).”
- The effect of credit risk, liquidity risk and bank capital on bank profitability: Evidence from an emerging market (2020, background): “Investors tend to use upcoming projects and increase consumer confidence, which leads a country to economically grow (Luo et al., 2016).”