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Traditional theory suggests that higher bank profitability (or franchise value) dissuades bank risk-taking. We … highlight an opposite effect: higher profitability loosens bank borrowing constraints. This enables profitable banks to take … risk on a larger scale, inducing risk-taking. This effect is more pronounced when bank leverage constraints are looser, or …
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concerned about being induced to finance bad risk projects when conditions deteriorate. A monopoly bank provides the socially … schlechten Projekte zu finanzieren. Eine monopolistische Bank leistet die sozial-optimale Auswahl guter Risiken, aber die …
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profitfunction. Using the distance function to compute banks’ profitability, we take the distance to the frontier of best practices …
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Banks in bad financial shape are more likely to appoint executive directors from the outside than those in good shape. It is, however, not clear whether all of these appointments necessarily lead to the desired turnaround. We analyze the performance effects of new board members with external...
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sovereign debt exposures and the implications of sovereign exposures for bank risk. Our main findings are as follows. First … impact of sovereign bond holdings on bank risk. This result could indicate the widespread absence of marking-to-market for … sovereign bond holdings at the onset of the sovereign debt crisis in Europe. …
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