Narrow Results

This paper examines the relationships among electronic finance (e-finance), entry deterrence, and the potential entrant's optimal loan interest rate in a two-stage model where the sunk costs are the entry barriers. The two key findings are: (i) in the loan rate determination stage, the potential entrant's loan rate is negatively related to its involvement level in e-finance with its own strategic substitutes, to the incumbent's involvement level in e-finance in realization of a more risky state of the world, and to the degree of contestability in realization of a less risky state and (ii) in the technology choice stage, the potential entrant's involvement level in e-finance is positively related to the incumbent's own strategic complements, and to the degree of contestability in realization of a more risky state. The results suggest that a potential entrant's banking investment depends on strong strategic management practices and the realization of risky states of the world.

The 2008–2009 financial crisis clearly indicated that government regulators are reluctant to let a large financial institution fail. In order to minimize the transfer of future losses to taxpayers or to solvent banks, we need a system for assuring that large institutions continuously maintain sufficient capital. For a variety of reasons, supervisors find it difficult to require institutions to sell new shares after they have suffered losses. This paper describes and evaluates a proposed security that converts from debt to equity automatically when the issuer’s equity ratio falls too low. “Contingent capital certificates” (CCCs) can greatly reduce the probability that a large financial firm will suffer losses in excess of its common equity, and will provide market discipline by forcing shareholders to internalize more of their assets’ poor outcomes. The proposed reliance on equity’s market value to trigger conversion creates some problems, which must be compared to the shortcomings of our current application of capital adequacy standards.

This study examines the regulatory hypothesis for bank dividend payouts using a panel dataset of 229 Italian banks over the period 2005–2012. Regulatory hypothesis suggests that undercapitalized banks face more regulatory pressure for increasing capital levels by paying lower amount of dividends. Empirical results support the regulatory hypothesis by finding that the Italian banks having lower equity to total assets ratios or lower regulatory capital ratios retain more profits and pay lower amount of dividends. Results also suggest that dividend payer banks try to maintain dividends at previous level by not skipping or reducing dividends. Results further support that Fama and French (2001)'s three characteristics of dividend payers are also applicable to banks. That is, big-in-size, more profitable and low growth Italian banks pay higher amount of dividends. Findings of this study have important implications for recent regulatory proposals that suggest a direct regulation of dividends. A direct regulation of dividends, on one hand, and regulatory pressure on dividend payout decisions through capital requirements, on the other hand, may have unintended consequences for dividends as signaling and agency cost reducing tools.

This paper primarily examines both causality effect of banks’ capital regulation and risk-taking behavior based on generalized methods of moment (GMM) for a dynamic unbalanced panel observation of 32 commercial banks in Bangladesh over the period 2000–2014. The empirical findings of this study suggest that capital regulation has a significant effect on risk-taking behavior, and excessive risks impede the growth of capital ratio as well as the stability. Moreover, from bank-level data, size does not uniformly affect the quantity of capital and risk. Large banks have poor capital ratio and higher inclination to risk than small size counterpart. Small size banks are well managed in capital ratio and risk-taking that glitter their stability through the periods. Besides these effects, corporate governance notably influenced banks to reduce credit risk and enhance stability. Finally, this paper provides some implications for the think tanks and stakeholders of the country.

This paper primarily examines the quadratic effect of banks’ size on capital regulation and risk-taking behavior by using simultaneous equation approach. This paper primarily examines the quadratic effect of banks’ size on capital regulation and risk-taking behavior by using simultaneous equation approach. To carry out the objective, this study has been built on the two-stage least squares (2SLS) method for a dynamic unstructured panel data of 85 banks from the Central European banks for the period 2012–2017. There is a positive and significant relation between regulatory capital and risk. Also, higher risk-taking behavior causes banks to sacrifice their stability. This study also finds that there is a negative correlation between bank size and capital, indicating that larger the bank size lower tendency to keep capital more. In similar way, there is also a negative association between bank size and risk taking, indicating that lower tendency of taking risk by large banks and vice-versa. Finally, this paper can be used as a medium of information for the stakeholders of banks and others financial institutions of the country. There is a dearth of literature which was built on the quadratic effect of bank size regarding recent financial regulation and risk.