| By: |
Fang , Yiwei (Lally School of Management and Technology, New York);
Hasan, Iftekhar (Lally School of Management and Technology, New York, and Bank of Finland,);
Marton, Katherin (Fordham University, New York) |
| Abstract: |
The policy changes and structural reforms in transition economies over the
past two decades have created exogenous variations in institutional
development, which offers us an ideal natural experiment to analyse the causal
effects of institutions on bank risk-taking behaviour. This paper examines a
wide array of institutional reforms in respect of law and legal institutions,
banking liberalization, and enterprise restructuring in privatization and
corporate governance. Using a difference-in-difference approach, we find that
banks’ financial stability has increased substantially subsequent to the
institutional reforms. Further analysis suggests that the enhancement of
financial stability mostly comes from the reduction of asset risk. Moreover,
the effects of institutional reforms on bank risk are more pronounced for
domestic banks than foreign banks. From the policy consideration, our study
sheds light on the risk implications of different institutional reforms that
have been characterizing transition countries. |
| Keywords: |
institutional development; bank risk; transition banking; foreign ownership |
| JEL: |
G21 P30 P34 P52 |
| Date: |
2011–03–23 |
| URL: |
http://d.repec.org/n?u=RePEc:hhs:bofrdp:2011_007&r=cis |