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Effect of External Support on Bank Default and Operating Risks: Does Country Strength Matter?
Author(s) -
Shen ChungHua,
Huang YuLi,
Lin KunLi
Publication year - 2018
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12222
Subject(s) - foreign ownership , business , corporate governance , government (linguistics) , sovereign default , credit risk , default , financial system , default risk , emerging markets , country risk , non performing loan , monetary economics , sovereignty , finance , foreign direct investment , economics , sovereign debt , macroeconomics , linguistics , philosophy , politics , political science , law , loan
Abstract This study investigates how two forms of external support, namely, government and foreign ownership, affect bank default and operating risks. The results show, first, that government ownership reduces default risk and increases operating risk, while foreign ownership reduces both default and operating risks. Second, government ownership decreases default risk especially for banks from advanced countries and countries with better national governance. Third, foreign ownership from countries with better sovereign ratings decreases both default and operating risks. Our results suggest that Asian countries should increase income or national governance for more effective government support and open the domestic bank market.