Financial fragility under implicit insurance scheme: Evidence from the collapse of Thai financial institutions

Using the Thai experience as a clinical study of a financial crisis, we investigate financial failures of Thai financial institutions. This study augments the CAMEL perspective by considering corporate governance and the moral hazard problems under the state of implicit government guarantee. The overall results suggest that high-replicated CAMEL ratings and downgrades of the ratings based on accounting-based information are likely to be important indicators of bank fragility. The ownership-based incentives of the largest shareholders and the level of risk associated with moral hazard problems are also factors that help discriminate sound and unsound financial institutions.CAMEL rating, incentives, deposit insurance, financial failure, Thai financial institutions

Ownership-based Incentives, Internal Corporate Risk and Firm Performance

This study focuses on the incentives and risk-taking behavior of large shareholders in Thailand before and after the 1997 financial crisis. The results show that there is a negative association between risk and firm performance. However, the effect ore cash flow re members of top management. Furthermore, there is weak evidence that a move to more transparent direct control structure benefits the firms. Overall, the results indicate that ownership-based incentives are an effective means of aligning the interests between controlling shareholders and minority shareholders particularly in the post-crisis period.Cash flow rights, Incentives, Financial and business risk, Thailand

Deposit Insurance, Corporate Governance and Discretionary Behavior: Evidence from Thai Financial Institutions

Claiming that the implicit cost of deposit insurance is an alternative proxy for risk-taking behavior, we examine the effects of incentive-inducing ownership and entrenchment of the largest shareholders and discretionary behavior of the management on the risk of Thai financial institutions. Our empirical results suggest that, during 1994-1996, the largest shareholders engage in low risk-taking activities when they hold large cash flow rights and have low deviation of cash flow from control rights. However, the risk is higher when the largest family shareholder enters the board and when Chairman-CEO can manipulate loan loss provisions. After the financial crisis, earnings management through discretion on loan loss provisions reduces risk. Overall, this study suggests that the problems underlying the implicit guarantee scheme are different between banks and finance companies, and between types of governance structure.Implicit guarantee, Risk, Ownership Structure, Managerial Discretion, Thai Financial Institutions

The Value of Principles-Based Governance Practices and the Attenuation of Information Asymmetry

Cost of capital, Information asymmetry, Corporate governance,