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CDS and bank ownership structures: Does the credit side show who advocates more risk?

Froneberg, Dennis and Kiesel, F. and Schiereck, D. :
CDS and bank ownership structures: Does the credit side show who advocates more risk?
[Online-Edition: http://dx.doi.org/10.1108/JRF-09-2015-0085]
In: The Journal of Risk Finance, 17 (2) pp. 169-193. ISSN 1526-5943
[Article] , (2016)

Official URL: http://dx.doi.org/10.1108/JRF-09-2015-0085

Abstract

Purpose: The study investigates whether ownership compositions effect credit risk profiles of banks prior to and in the financial crisis. In detail, the study examines whether more powerful owners of a bank impact the credit risk profile.

Design/methodology/approach: The effects of the ownership structure on credit risk are estimated using credit default swap (CDS) spreads. Therefore, 86 global privately held and publicly listed banks from 23 countries are considered in a panel analysis for the years 2005–2008.

Findings: The results indicate that banks with a more concentrated ownership structure tend to be riskier as they have larger CDS spreads. Furthermore, we observe that bank regulation has a negative impact on banks’ credit risk. Larger banks exhibit significantly lower risk than smaller banks.

Originality/value: These findings are of high relevance for the respective national regulative environment as well as for the respective financial institutions themselves. Regulatory bodies have to be aware of whether certain ownership compositions lead to a significant risk factor and which risk indicators exhibit the risk more precisely and in timely fashion.

Item Type: Article
Erschienen: 2016
Creators: Froneberg, Dennis and Kiesel, F. and Schiereck, D.
Title: CDS and bank ownership structures: Does the credit side show who advocates more risk?
Language: English
Abstract:

Purpose: The study investigates whether ownership compositions effect credit risk profiles of banks prior to and in the financial crisis. In detail, the study examines whether more powerful owners of a bank impact the credit risk profile.

Design/methodology/approach: The effects of the ownership structure on credit risk are estimated using credit default swap (CDS) spreads. Therefore, 86 global privately held and publicly listed banks from 23 countries are considered in a panel analysis for the years 2005–2008.

Findings: The results indicate that banks with a more concentrated ownership structure tend to be riskier as they have larger CDS spreads. Furthermore, we observe that bank regulation has a negative impact on banks’ credit risk. Larger banks exhibit significantly lower risk than smaller banks.

Originality/value: These findings are of high relevance for the respective national regulative environment as well as for the respective financial institutions themselves. Regulatory bodies have to be aware of whether certain ownership compositions lead to a significant risk factor and which risk indicators exhibit the risk more precisely and in timely fashion.

Journal or Publication Title: The Journal of Risk Finance
Volume: 17
Number: 2
Publisher: Emerald Group Publishing Limited
Divisions: 01 Law and Economics > Betriebswirtschaftliche Fachgebiete
01 Law and Economics > Betriebswirtschaftliche Fachgebiete > Corporate finance
01 Law and Economics
Date Deposited: 19 Feb 2016 10:21
Official URL: http://dx.doi.org/10.1108/JRF-09-2015-0085
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