Alexia Ventouri

Financial Frictions, Bank Efficiency and Risk: Evidence from the Eurozone

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.

Efficiency and productivity of Greek banks in the EMU era

We provide a characterization of the Greek banking systems efficiency and productivity under the new environment that the Economic and Monetary Union (EMU) participation implies. We consider cost and profit efficiency as well as productivity change of commercial banks using the nonparametric Data Envelopment Analysis (DEA) and the Total Factor Productivity (TFP) Malmquist Index. The period under study is 1998–2003 covering Greeces entry into the euro area in 2001 and the run-up to it. Moreover, enhanced competition along with lower inflation and interest rates has further motivated financial innovation and Off-Balance Sheet (OBS) business. Our findings suggest that cost efficiency has risen by 4.3% over the 6 years under study. Moreover, Greek banks seem to enjoy relatively high profit efficiency (on average 75%) showing an increase by 93% over 1998–2003. Similarly, productivity seems to have risen by 15% and this was mainly driven by the improvements in the performance of best-practice institutions. Our results do not show any role for OBS activities in Greek banks’ efficiency. Finally, while the impact of profitability and size on efficiency and productivity yields mixed results, our empirical findings seem to corroborate previous studies in that controlling for risk preferences is important in determining bank efficiency.

Does executive ownership lead to excess target cash? The case of U.K. firms

The aim of this paper is to investigate the dynamics between executive ownership and excess cash policy in the UK.,The authors identify firms adopting an excess policy using a joint criterion of high cash and cash higher than the target. Logit analysis is used to estimate the impact of executive ownership and other governance characteristics on the probability of adopting an excess cash policy.,The results suggest that, in the UK, the impact of the executive ownership on the probability of adopting an excess cash policy is non-monotonic, in line with the alignment-entrenchment hypothesis. The results are robust to different definitions of excess cash policy, to alternative specifications of the regression model, to different estimation frameworks and to alternative proxies of ownership concentration.,The authors’ approach provides a new measure of the excess target cash for the firm. They show the need to identify an excess target cash policy not only by using an empirical criterion and a theoretical target level of cash, but also by capturing persistence in deviation from the target cash level. The authors’ measure of excess target cash calls into questions findings from previous studies. The authors’ approach can be used to explore whether excess cash holdings of UK firms and the impact of managerial ownership have changed from before the crisis to after the crisis.,The authors’ measure of excess target cash allows identifying in practice levels of cash which are abnormal with respect to an equilibrium level. UK firms should be cautious in using executive ownership as a corporate governance mechanism, as this may generate suboptimal cash holdings and suboptimal firm value. Excess cash policy might be driven not only by a poor corporate governance system, but also by the interplay between agency costs of managerial opportunism and cost of the external finance which further research could explore.,Actually, “how much cash is too much” is a question that has not been addressed by the literature. The authors address this question. Also, this amount of cash allows the authors to study the extent to which executive ownership contributes to explain the out-of-equilibrium persistency in the cash level.

Regulation and Bank Performance in Europe

A complex net of regulations permeates the financial systems of most developed and emerging economies. The various rationales emphasize the implications of fragile financial structures for social welfare, especially those that materialize when financial crises occur. Given their specialness, banks are typically more heavily regulated than nonbanking financial institutions. Bank regulation, that is, the rules governing banks’ behaviour, is complemented by bank supervision, which refers to the oversight which ensures that banks comply with those rules.1 Both financial and bank regulation are highly controversial issues, and the debate has become more intense, especially since the 2008 financial crisis. The extent of financial regulation in the pre-crisis period has been considered inadequate by some analysts and excessive or misplaced by others. The financial crisis in itself is a manifestation of the failure of the existing regulatory framework, rendering the reconsideration of the existing arguments and policy institutions necessary.