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Do consolidation and foreign ownership affect bank risk taking in an emerging economy? An empirical investigation

Mona Elbannan

Managerial Finance, 2015, vol. 41, issue 9, 874-907

Abstract: Purpose - – The purpose of this paper is to examine the effect of bank consolidation and foreign ownership on bank risk taking in the Egyptian banking sector. Design/methodology/approach - – Following prior studies (e.g. Yeyati and Micco, 2007; Barry Findings - – This study provides empirical evidence that bank concentration is associated with low insolvency risk and credit risk as measured by loan loss provisions ( Practical implications - – Consolidation of the banking sector decreases insolvency risk and credit risk, as measured by Social implications - – Bank supervisors should intensely monitor banks with high-CARs that exceed mandatory requirements because they may be more likely to engage in more risk-taking activities. Originality/value - – It provides empirical evidence from a country-specific, emerging market perspective, in which restructuring events affect the national economy. Egypt, similar to other emerging countries in Africa, pursues an institutionally based (bank-based) system of corporate governance, where banks are the primary sources of finance for firms. Therefore, restructuring banks and other financial institutions and supervising their operations ensure the soundness and stability of these institutions, which represent the nerve of emerging economies. Because emerging countries tend to share common characteristics and economic conditions, and the reform of their financial systems is significant for economic development, the Egyptian banking reform and restructuring program should be of interest to other emerging countries to capitalize on this experiment. While international studies on these relationships are mostly cross-country or focus on US banks, firm-specific studies are scant. Furthermore, the findings of this study should be of interest to Egyptian regulators, bank supervisors and policy makers studying the implications of bank reforms.

Keywords: Foreign ownership; Banking; Bank risk taking; Consolidation (search for similar items in EconPapers)
Date: 2015
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