Financial Frictions, Efficiency and Risk: Evidence from the Euro Area

Chortareas, Georgios E, Girardone, Claudia and Ventouri, Alexia (2011) Financial Frictions, Efficiency and Risk: Evidence from the Euro Area. Journal of Business Finance and Accounting, 38 (1&2). pp. 259-287. ISSN 1468-5957

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This paper employs a simultaneous equations approach to investigate the dynamics between financial frictions, efficiency and risk for eurozones commercial banks. We consider two related channels through which financial frictions may arise: informational and market structure imperfections, and allow for a possible reverse causation from efficiency to banks asset quality. The findings validate the presence of both channels of financial frictions and are consistent with the efficiency-lending quality hypothesis that low efficiency signals poor asset quality loans. Finally, our findings suggest that policies aimed at constraining banks degree of openness may ultimately direct management choices towards riskier investments.

Item Type: Article
Schools and Departments: University of Sussex Business School > Business and Management
Depositing User: Alexia Ventouri
Date Deposited: 06 Feb 2012 18:34
Last Modified: 23 Mar 2012 09:38
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