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Does economic freedom matter for risk-taking? Evidence from MENA banks

Saibal Ghosh

Review of Behavioral Finance, 2016, vol. 8, issue 2, 114-136

Abstract: Purpose - The relevance of economic freedom in influencing bank risk has not been adequately addressed in the literature. In this connection, employing bank-level data for 2000-2012, the article examines the impact of economic freedom on risk-taking by MENA banks. Design/methodology/approach - Given the cross-sectional, time series nature of the data, we employ panel data techniques to explore this issue. In addition, we examine the robustness of the results using instrumental variable techniques. Findings - The findings appear to suggest that economic freedom exerts a significant and non-negligible impact on bank risk-taking. Among the sub-components of economic freedom, it is observed that higher levels of both business and monetary freedom increase variability of profits and thereby, raise the risk appetite of banks. Risk taking by banks appears to be reliably lower after the crisis than in the period prior to it, although there was a substantial increase in bank risk taking during the crisis. Originality/value - To the best of our knowledge, this is one of the earliest studies to explore the interlinkage between economic freedom and bank risk-taking for MENA banks.

Keywords: Risk taking; Banking; MENA; Economic freedom; javax.xml.bind.JAXBElement@55fa1e5e (search for similar items in EconPapers)
Date: 2016
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