Abstract
This paper aims to addresses the impact of corruption, anti-corruption commission, and government intervention on bank’s risk-taking using banks in Asian Countries such as Indonesia, Malaysia, Thailand, and South of Korea during the period 1995-2016. This paper uses corruption variable, bank-specific variables, macroeconomic variables, dummy variables and interaction variable to estimate bank’s risk-taking variable. Using data from 76 banks in Indonesia, Malaysia, Thailand and South Korea over 21 years, this research finds consistent evidence that higher level of corruption and government intervention in crisis-situation will increase the risk-taking behaviour of banks. In the other hand, bank risk-taking behaviour minimized by the existence of anti-corruption commission. In addition, this paper also finds that government intervention amplifies corruption’s effect on bank’s risk-taking behaviour because of strong signs of moral hazard and weaknesses in the governance and supervision.
Highlights
In recent light of events, numerous research paper regarding financial crises surfaced and banking sector emerge as the focus of the topic
Various determinants of bank risk-taking have been documented in extant literature, but study on the effects of corruption on bank risktaking is still very limited
Using the data from banks in Indonesia, Malaysia, Thailand, and South Korea from 1995 to 2016, this paper shows excessive bank risk-taking behavior in economies with high level corruption
Summary
In recent light of events, numerous research paper regarding financial crises surfaced and banking sector emerge as the focus of the topic. Some researchers suggest excessive bank risk-taking behavior as one of the main reason of the crisis (Mishkin, 1996; Beck et al, 2006; Diamond & Rajan, 2009; Acharya & Naqvi, 2012). Banks’ large-scale use of short-term debt in U.S denomination to fund long-term investment exposing maturity-gap risk and exchange rate risk for the banks and eventually causes the financial turmoil (Miller, 1998). Numerous of politically motivated lending and no adequate regulation for bankruptcy plays a role in the crisis (Chowdhry & Goyal, 2000). Indonesian Government intervene directly to banks by providing liquidity support, introducing blanket guarantee scheme, recapitalize and liquidate some banks in addition of monetary policy and financial institutions reforms to prevent further damage to the economy (Agusman et al, 2014)
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