Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector
The third pillar of the Basel II highlights the role of market discipline in easing the existing pressure on traditional monitoring measures like capital requirement and government supervision. This study test the effectiveness of market discipline in inducing prudential risk management practices am...
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| Format: | Article |
| Language: | English |
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Korea Institute for International Economic Policy (KIEP)
2017
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| Online Access: | http://eprints.usm.my/37048/1/%28Market_Discipline_and_Bank%29__JE0001_2017_v21n1_29.pdf |
| _version_ | 1825833586083758080 |
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| author | Hamid, Fazelina Sahul Yunus, Norhanishah Mohd |
| author_facet | Hamid, Fazelina Sahul Yunus, Norhanishah Mohd |
| author_sort | Hamid, Fazelina Sahul |
| collection | USM |
| description | The third pillar of the Basel II highlights the role of market discipline in easing the existing pressure on traditional monitoring measures like capital requirement and government supervision. This study test the effectiveness of market discipline in inducing prudential risk management practices among the East Asian banks over the 1995 to 2005 period. Market discipline is measured using information disclosure and interbank deposit holdings. We find that only the latter is an effective market discipline tool. However, the former becomes effective when market concentration is higher. We find that government owned, foreign owned and recapilatised banks are subject to market disciplining when disclosure in taken account but the opposite is true when interbank deposits is taken into account. Finally, we find that banks that disclose more risk related information hold more capital against their non-performing loan. The implications of the findings are discussed. |
| first_indexed | 2024-03-06T15:10:02Z |
| format | Article |
| id | usm.eprints-37048 |
| institution | Universiti Sains Malaysia |
| language | English |
| last_indexed | 2024-03-06T15:10:02Z |
| publishDate | 2017 |
| publisher | Korea Institute for International Economic Policy (KIEP) |
| record_format | dspace |
| spelling | usm.eprints-370482018-02-09T05:21:50Z http://eprints.usm.my/37048/ Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector Hamid, Fazelina Sahul Yunus, Norhanishah Mohd LC5800-5808 Distance education. The third pillar of the Basel II highlights the role of market discipline in easing the existing pressure on traditional monitoring measures like capital requirement and government supervision. This study test the effectiveness of market discipline in inducing prudential risk management practices among the East Asian banks over the 1995 to 2005 period. Market discipline is measured using information disclosure and interbank deposit holdings. We find that only the latter is an effective market discipline tool. However, the former becomes effective when market concentration is higher. We find that government owned, foreign owned and recapilatised banks are subject to market disciplining when disclosure in taken account but the opposite is true when interbank deposits is taken into account. Finally, we find that banks that disclose more risk related information hold more capital against their non-performing loan. The implications of the findings are discussed. Korea Institute for International Economic Policy (KIEP) 2017-03 Article PeerReviewed application/pdf en http://eprints.usm.my/37048/1/%28Market_Discipline_and_Bank%29__JE0001_2017_v21n1_29.pdf Hamid, Fazelina Sahul and Yunus, Norhanishah Mohd (2017) Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector. East Asian Economic Review, 21 (1). pp. 29-58. ISSN 2508-1640 http://dx.doi.org/10.11644/KIEP.EAER.2017.21.1.322 |
| spellingShingle | LC5800-5808 Distance education. Hamid, Fazelina Sahul Yunus, Norhanishah Mohd Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector |
| title | Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector |
| title_full | Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector |
| title_fullStr | Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector |
| title_full_unstemmed | Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector |
| title_short | Market Discipline and Bank Risk Taking: Evidence from the East Asian Banking Sector |
| title_sort | market discipline and bank risk taking evidence from the east asian banking sector |
| topic | LC5800-5808 Distance education. |
| url | http://eprints.usm.my/37048/1/%28Market_Discipline_and_Bank%29__JE0001_2017_v21n1_29.pdf |
| work_keys_str_mv | AT hamidfazelinasahul marketdisciplineandbankrisktakingevidencefromtheeastasianbankingsector AT yunusnorhanishahmohd marketdisciplineandbankrisktakingevidencefromtheeastasianbankingsector |