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Market discipline in the Central American bankingsystem

Edgar Demetrio Tovar-Garcia ()

Contaduría y Administración, 2017, vol. 62, issue 5, 23-24

Abstract: The hypothesis of market discipline is empirically verified in the Central American banking system. A contrast is carried out on whether the riskier banks (the ones with the worst banking fundamentals) pay higher interest rates and receive smaller amounts in deposits. The generalized method of moments is used for dynamic panel data models (the SYS GMM estimator), as well as a sample of 30 banks from six Central American countries during the 2008–2012 period. Unlike the majority of the previous empirical literature, specifically for developed countries, no evidence of market discipline was found in Central America. The results are robust for several indicators of the banking fundamentals for purposes of internal demand of bank capital, and for other econometric models. These findings indicate weaknesses in the bank policy regarding the disclosure of information.

Keywords: Market discipline; Internal capital market; Deposit market; Bank risk; Central America (search for similar items in EconPapers)
JEL-codes: E59 G21 G39 (search for similar items in EconPapers)
Date: 2017
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