Work

Activity Strategies, Agency Problems, and Bank Risk

Year: 2020

Type: article

Abstract: We investigate whether diversification affects bank risk taking in the U.S. banking industry, and whether this relation is partially explained by agency theory. Our results show that U.S. banks with a relatively high share of noninterest income become riskier when moving toward non‐interest‐income‐generating activities, especially activities from investment banking, proprietary trading, and so on. Diversification not only affects conditional average risk, but also the dispersion of risk. Moreover, diversified banks that received assistance from the Troubled Asset Relief Program (TARP) become riskier than diversified nonrecipients after TARP capital injections. Our main findings are robust to a battery of robustness tests. The results are partially explained under agency frameworks related to poor corporate governance.

Source: The Journal of Financial Research

DOI: 10.1111/jfir.12216

Authors: Dung V. Tran, M. Kabir Hassan, Isabelle Girerd‐Potin, Pascal Louvet

Institutions: Ho Chi Minh University of Banking, LSU New Orleans, Institut polytechnique de Grenoble, Centre d'Etudes et de Recherches Appliquées à la Gestion, Université Grenoble Alpes

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2900205111

FWCI: 3.89

Cites: 80

Cited by: 22

Related to: 10