CAPITAL FLOWS AND RISK-TAKING BEHAVIOUR

Bayront Y. Rumondor and Pakasa Bary

No WP/23/2018, Working Papers from Bank Indonesia

Abstract: This paper investigates the impact of liquid capital flows on bank behavior, particularly on risk-taking behavior. This study employs three sections of empirical assessment, namely (i) industry level estimations; (ii) industry-level estimations which allow different characteristics of large banks; and (iii) multi-country analysis that covers data of emerging market economies. Estimation results suggest that capital inflows, particularly in the form of portfolio investment, is significant in raising banks' risk-taking behavior. Moreover, large banks are less aggressive in their risk taking behavior vis a vis smaller banks. Such impact of portfolio investment on risk-taking behavior is also shown in multi-country assessments. There is some evidence that the effect of portfolio investment on risk-taking behavior is relatively persistent.

Keywords: capital flows; risk-taking behavior; panel data (search for similar items in EconPapers)
JEL-codes: E0 F0 F1 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2018
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http://publication-bi.org/repec/idn/wpaper/WP232018.pdf First version, 2018 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:idn:wpaper:wp232018

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