Technology choice and bank performance with government capital injection under deposit insurance fund protection

Shi Chen and Ku-Jun Lin

International Review of Economics & Finance, 2015, vol. 39, issue C, 162-174

Abstract: The barrier option theory of corporate security valuation is applied to the two-stage contingent claims of a regulated bank during a financial turmoil. This paper examines the relationships among government capital injection, regulatory deposit insurance fund protection, bank interest margin, and technology choice of investment in human resource relative to information technology. An increase in human resource results in an increased interest margin, and further a decreased default risk when the bank adopts a relatively high level of information technology. We also show a positive effect of government capital injection on human resource investment and a negative effect on bank default risk. Regulatory deposit insurance fund protection weakens the increased human resource investment, but reinforces the decreased default risk. Both the government capital injection and the regulatory deposit insurance fund protection may stabilize the distressed bank explicitly considering technology choice.

Keywords: Government capital injection; Deposit insurance fund protection; Human resource investment; Bank interest margin; Default risk (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:39:y:2015:i:c:p:162-174

DOI: 10.1016/j.iref.2015.04.003

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