Open AccessInvestment, Financial, Trade Freedom and Risk-taking: Empirical Evidence from USA
Author(s) -
Faisal Abbas,
Noshaba Batool,
Fiaz Ahmad Sulehri
Publication year - 2021
Publication title -
estudios de economía aplicada
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.123
H-Index - 6
eISSN - 1697-5731
pISSN - 1133-3197
DOI - 10.25115/eea.v39i2.3736
Subject(s) - economic freedom , loan , investment (military) , financial risk , business , government (linguistics) , financial system , sample (material) , economic interventionism , finance , economics , political science , linguistics , philosophy , chemistry , chromatography , politics , law , market economy
This study aims to explore investment, financial, and trade freedom impact on banks’ risk-taking. A unique dataset of large commercial banks of the USA covering the period 2002-2018 is used. The findings prove that financial freedom reduces the bank’s risk-taking whereas investment and trade freedom increase the risk-taking of large commercial banks in the observed period. The behavior of risk-taking due to financial, trade and investment freedom of under-capitalized and low-liquid banks seems to be marginally less impacted as compared to well-capitalized and high-liquid banks. The findings are robust using loan loss reserves as a risk measure and subclassification of a sample. The results suggest that the intervention of the government is decisive in developing the degree of economic freedom for the stability of the financial system.