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Investor protection, regulation and bank risk-taking behavior

Joao Teixeira (), Tiago F.A. Matos, Gui L.P. da Costa and Mário J.A. Fortuna

The North American Journal of Economics and Finance, 2020, vol. 51, issue C

Abstract: This paper examines whether the influence of investor protection on banks’ risk is channeled through banking regulation, and vice-versa, using panel data from a sample of 567 European and US banks for the 2004–2015 period. As banking regulatory factors, we consider capital stringency, activity restrictions and private monitoring, whereas as investor protection factors, we consider the level of shareholder and creditor protection. We find that banking regulation moderates the positive direct influence of investor protection on banks’ risk, while investor protection reinforces the negative direct influence of banking regulation on risk. Moreover, we show that the negative effect of national regulations on banks’ risk is more pronounced during systemic crisis years. Finally, taking into account market competition, we argue that private monitoring only has a direct effect on banks’ risk, whereas the effects of capital stringency and activity restriction are channeled through market competition.

Keywords: Bank risk; Investor protection; Property rights; Bank regulation (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 G32 P26 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.najef.2019.101051

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