Performance and Merton-type default risk of listed banks in the EU: A panel VAR approach

Koutsomanoli-Filippaki, Anastasia and Mamatzakis, Emmanuel (2009) Performance and Merton-type default risk of listed banks in the EU: A panel VAR approach. Journal of Banking and Finance, 33 (11). pp. 2050-2061. ISSN 0378-4266

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Abstract

This paper provides empirical evidence that sheds new light into the dynamic interactions between risk and efficiency, a highly debated issue. First, we estimate three alternative measures of bank performance, by employing a directional distance function framework, along with a cost frontier and a profit function. As a second step, we calculate a Merton-type bank default risk. Then, we employ a panel VAR analysis, which allows the examination of the underlying relationships between efficiency and risk without applying any a priori restrictions. Most evidence shows that the effect of a one standard deviation shock of the distance to default on inefficiency is negative and substantial. There is some evidence of a reverse causation. As part of a sensitivity analysis, we extent our study to investigate the relationship between efficiency and default risk for banks with different types of ownership structures and across financial systems with different levels of development.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Business and Management
Subjects: H Social Sciences > HG Finance > HG1501 Banking
Depositing User: Emmanuel Mamatzakis
Date Deposited: 27 Jun 2012 10:46
Last Modified: 13 Mar 2017 12:13
URI: http://sro.sussex.ac.uk/id/eprint/39701

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