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A Cross-Country Assessment of Bank Risk-Shifting Behavior

James R. Barth

Department of Finance, Auburn University, 303 Lowder Business Building, Auburn University, AL 36849, USA

Corresponding author.

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Mark Bertus

Department of Finance, Auburn University, 303 Lowder Business Building, Auburn University, AL 36849, USA

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Jiang Hai

Department of Finance, Jinan University, Guangzhou, 510632, China

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, and

Triphon Phumiwasana

Milken Institute, 1250 Fourth St., Santa Monica, CA 90401, USA

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https://doi.org/10.1142/S0219091508001234Cited by:7 (Source: Crossref)

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 presents a simple model and 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 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.

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