Can Higher Capital Discipline Bank Risk: Evidence from a Meta-Analysis

Quang T. T. Nguyen, Son T. B. Nguyen and Quang V. Nguyen
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Quang T. T. Nguyen: University of Economics—The University of Danang, Danang 55000, Vietnam
Son T. B. Nguyen: University of Foreign Language Studies—The University of Danang, Danang 55000, Vietnam
Quang V. Nguyen: Ho Chi Minh National Academy of Politics—Region III, Danang 55000, Vietnam
Authors registered in the RePEc Author Service: Quang Thi Thieu Nguyen

JRFM, 2019, vol. 12, issue 3, 1-21

Abstract: Capital regulation has been among the most important tools for regulators to maintain the credibility and stability of the financial systems. However, the question whether higher capital induce banks to take lower risk remains unanswered. This paper examines the effect of capital on bank risk employing a meta-analysis approach, which considers a wide range of empirical papers from 1990 to 2018. We found that the negative effect of bank capital on bank risk, which implies the discipline role of bank capital, is more likely to be reported. However, the reported results are suffered from the publication bias due to the preference for significant estimates and favored results. Our study also shows that the differences in the previous studies’ conclusions are primarily caused by the differences in the study design, particularly the risk and capital measurements; the model specification such as the concern for the dynamic of bank risk behaviors, the endogeneity of the capital and unobserved time fixed effects; along with and the sample characteristics such as the sample size, and whether banks are bank holding companies or located in high-income countries.

Keywords: bank capital; bank risk; meta-analysis; Bayesian model-averaging; capital regulation (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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