Monitoring Bank Performance in the Presence of Risk (Epure M., Lafuente E.)

Bank Managers Risk-taking and Risk Management Stability&Soundness

Abstract This paper assesses bank performance from a monitoring perspective. We first propose a multidimensional efficiency measure that integrates credit risk and is adapted to the real banking technology. Second, accounting ratios complement the analysis and provide proximity to managerial communities. Third, the impact of different risk measures over efficiency and accounting ratios is shown. Fourth, we examine the effect of CEO turnover on future performance. An empirical application considers the Costa Rican banking industry during 1998-2007. Results reveal that performance improvements follow regulatory changes and that risk explains differences in bank performance. Specifically, non-performing loans negatively affect efficiency and return on assets, whereas the capital adequacy ratio has a positive impact on the net interest margin. This supports that incurring monitoring costs and having higher levels of capitalisation may lead to performance gains. Finally, results confirm that appointing CEOs from outside the bank significantly improves performance, thus suggesting the potential benefits of new organisational practices.
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Libref/ Epure M., Lafuente E. (2012) "Monitoring Bank Performance in the Presence of Risk", Barcelona Graduate School of Economics Working Papers 613.
© Программирование — Александр Красильников, 2008
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