Foreign bank subsidiaries’ risk-taking behavior: Impact of home and host country national culture

This paper examines whether the risk-taking behavior of foreign affiliates of multinational banks is more influenced by the national culture of their parent banks’ home country or the national culture of foreign affiliates’ host country. The study uses a dataset of 292 foreign affiliates (i.e., subsidiaries or branch operations) operating in 66 countries having parent banks in 26 countries for empirical analysis. National culture of both home and host countries is measured with four dimensions—uncertainty avoidance, individualism, masculinity and power distance—of Hofstede's framework of national culture. Findings suggest that the national culture of parent banks’ home country has higher impact on the risk-taking behavior of foreign affiliates of multinational banks than the national culture of their host country. Specifically, foreign affiliates’ risk-taking is higher if parent banks’ home country has low uncertainty avoidance, high individualism and low power distance cultural values. This study extends our understanding that how informal institutions, such as the national culture, influence the financial decisions in multinational banks

Survey to assess the problems of corporate governance facing Islamic Financial Institutions (IFI’s) at this moment in time

This dissertation highlights and analyses the results of a Survey to assess the problems of corporate governance facing Islamic Financial Institutions (IFI’s) at this moment in time. The significance of the dissertation is in describing governance in Islamic financial institutions and how there are numerus matters under the investigation process, and to view the entire area of corporate governance from a religious context. A solution to deal with these problems from a religious angle, whereby the obligation of adhering to good corporate governance practices is perceived from the perspective of religious obligations. One of the objectives of this paper is to examine, and create greater awareness of, some of the critical issues related to corporate governance in Islamic financial institutions. A second, perhaps, a more significant objective is to emphasize how improvements in corporate governance in such institutions can come about by viewing them as a religious obligation, and thereby preserving their acceptance but safeguarding the interests of all stakeholders. Islamic Shariah provides guidelines that can help the Islamic finance industry alleviate problems resulting from the dualism of improving financial efficiency and observing the rules of Shariah. A greater commitment to the objectives of Shariah may allow the industry to escape the argument that Islamic finance is dissimilar in form but effectively the same in substance to conventional finance

Capital Regulation and Bank Risk-Taking Behavior: Evidence from Pakistan

In response to the global financial crisis of 2007–2009, risk-based capital requirements have been reinforced in the new Basel III Accord to counter excessive bank risk-taking behavior. However, prior theoretical as well as empirical literature that studies the impact of risk-based capital requirements on bank risk-taking behavior is inconclusive. The primary purpose of this paper is to examine the impact of risk-based capital requirements on bank risk-taking behavior, using a panel dataset of 21 listed commercial banks of Pakistan over the period 2005–2012. Purely regulatory measures of bank capital, capital adequacy ratio, and bank assets portfolio risk, risk-weighted assets to total assets ratio, are used for the main analysis. Recently developed small N panel methods (bias corrected least squares dummy variable (LSDVC) method and system GMM method with instruments collapse option) are used to control for panel fixed effects, dynamic dependent variables, and endogenous independent variables. Overall, the results suggest that commercial banks have reduced assets portfolio risk in response to stringent risk-based capital requirements. Results also confirm that all banks having risk-based capital ratios either lower or higher than the regulatory required limits, have decreased portfolio risk in response to stringent risk-based capital requirements. The results are robust to alternative proxies of bank risk-taking, alternative estimation methods, and alternative samples

Zipf's law, the coherence of the urban system and city size distribution: Evidence from Pakistan

This paper examines the Zipf’s law for the size distribution of Pakistani cities using the five census data from 1951 to 1998. We observe that Zipf’s law does not hold in any of the five census years at national level. Next, we consider the city size distribution of four Pakistani provinces and find that Zipf’s law is more likely to hold for cities at province-level. We attribute these findings to the coherence property of the urban system. In Pakistan the urban systems within provinces are more coherent in terms of common language, common culture and common rules as compared to the urban system as a whole at national-level

Zipf's law and city size distribution: A survey of the literature and future research agenda

This study provides a systematic review of the existing literature on Zipf’s law for city size distribution. Existing empirical evidence suggests that Zipf’s law is not always observable even for the upper-tail cities of a territory. However, the controversy with empirical findings arises due to sample selection biases, methodological weaknesses and data limitations. The hypothesis of Zipf’s law is more likely to be rejected for the entire city size distribution and, in such case, alternative distributions have been suggested. On the contrary, the hypothesis is more likely to be accepted if better empirical methods are employed and cities are properly defined. The debate is still far from to be conclusive. In addition, we identify four emerging areas in Zipf’s law and city size distribution research including the size distribution of lower-tail cities, the size distribution of cities in sub-national regions, the alternative forms of Zipf’s law, and the relationship between Zipf’s law and the coherence property of the urban system

Effects of national culture on bank risk-taking behavior

Theory suggests that national culture influences bank risk-taking behavior directly by conditioning the decision-making of human participants. This study uses an international sample of banks from 75 countries and examines the direct effects of national culture on bank risk-taking behavior. We measure national culture with four dimensions – uncertainty avoidance, individualism vs. collectivism, masculinity vs. femininity and power distance – from Hofstede's framework of national culture. We find strong evidence that bank risk-taking is significantly higher in countries which have high individualism, low uncertainty avoidance, and low power distance cultural values. We confirm main results using alternate cultural dimensions from House et al. (2004. Culture, Leadership, and Organizations. Sage)’s framework of national culture, using alternative bank risk-taking proxies, and using instrumental variables analysis for endogeneity issues. This paper adds to our understanding by finding that cultural values lead to bank risk-taking decisions that may deviate in systematic and geographically predictable ways

Trade Openness and Bank Risk-Taking Behavior: Evidence from Emerging Economies

In this paper, we examine the impact of trade openness on bank risk-taking behavior. Using a panel dataset of 291 banks from 37 emerging countries over the period from 1998 to 2012, we find that higher trade openness decreases bank risk-taking. The results are robust when we use alternative bank risk-taking proxies and alternative estimation methods. We argue that trade openness provides diversification opportunities to banks in lending activities, which decrease overall bank risk. Further to this end, we observe that higher trade openness helps domestic banks to smooth out income volatility and decreases the impact of a financial crisis on banks

Do Better Political Institutions Help in Reducing Political Pressure on State-Owned Banks? Evidence from Developing Countries

This study examines whether state-owned banks face political pressure and whether the improvement in political institutions alleviates this pressure. The theory of political benefits argues that politicians use state-owned banks for political purposes such as obtaining and maintaining political support. We reviewed extant empirical research and found that the existing evidence is mixed; some studies support while others reject the theory. In this backdrop, we analyzed a sample of 185 state-owned banks from 51 developing countries over the period 1998–2012 and provide renewed evidence supporting the theory. Specifically, we found that state-owned banks face significant political pressure in developing countries; that is, they lend more and earn less in election years. Next, we observed that the political pressure is prevalent only in the countries with weak political institutions. Strong political institutions in the form of higher constraints on policy change decisions of incumbent government and higher democratic accountability are helpful in eliminating political pressure on state-owned banks in developing countrie