Showing papers by "Asli Demirguc-Kunt published in 2010"
Posted Content•
TL;DR: In this paper, the authors compared conventional and Islamic banks and found no significant differences in business orientation, efficiency, asset quality, or stability, and found that conventional banks that operate in countries with a higher market share of Islamic banks are more cost-effective but less stable.
Abstract: This paper discusses Islamic banking products and interprets them in the context of financial intermediation theory. Anecdotal evidence shows that many of the conventional products can be redrafted as Sharia-compliant products, so that the differences are smaller than expected. Comparing conventional and Islamic banks and controlling for other bank and country characteristics, the authors find few significant differences in business orientation, efficiency, asset quality, or stability. While Islamic banks seem more cost-effective than conventional banks in a broad cross-country sample, this finding reverses in a sample of countries with both Islamic and conventional banks. However, conventional banks that operate in countries with a higher market share of Islamic banks are more cost-effective but less stable. There is also consistent evidence of higher capitalization of Islamic banks and this capital cushion plus higher liquidity reserves explains the relatively better performance of Islamic banks during the recent crisis.
1,165Â citations
TL;DR: In this paper, the authors compared conventional and Islamic banks and found no significant differences in business orientation, efficiency, asset quality, or stability, and found that conventional banks that operate in countries with a higher market share of Islamic banks are more cost-effective but less stable.
Abstract: This paper discusses Islamic banking products and interprets them in the context of financial intermediation theory. Anecdotal evidence shows that many of the conventional products can be redrafted as Sharia-compliant products, so that the differences are smaller than expected. Comparing conventional and Islamic banks and controlling for other bank and country characteristics, the authors find few significant differences in business orientation, efficiency, asset quality, or stability. While Islamic banks seem more cost-effective than conventional banks in a broad cross-country sample, this finding reverses in a sample of countries with both Islamic and conventional banks. However, conventional banks that operate in countries with a higher market share of Islamic banks are more cost-effective but less stable. There is also consistent evidence of higher capitalization of Islamic banks and this capital cushion plus higher liquidity reserves explains the relatively better performance of Islamic banks during the recent crisis.
888Â citations
Posted Content•
TL;DR: In this article, the authors study whether better capitalized banks fared better in terms of stock returns during the financial crisis and find that the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio, and there is evidence that higher quality forms of capital such as Tier 1 capital were more relevant.
Abstract: Using a multi-country panel of banks, the authors study whether better capitalized banks fared better in terms of stock returns during the financial crisis. They differentiate among various types of capital ratios: the Basel risk-adjusted ratio; the leverage ratio; the Tier I and Tier II ratios; and the common equity ratio. They find several results: (i) before the crisis, differences in capital did not affect subsequent stock returns; (ii) during the crisis, higher capital resulted in better stock performance, most markedly for larger banks and less well-capitalized banks; (iii) the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio; (iv) there is evidence that higher quality forms of capital, such as Tier 1 capital, were more relevant. They also examine the relationship between bank capitalization and credit default swap (CDS) spreads.
427Â citations
TL;DR: In this article, the impact of government indebtedness and deficits on bank stock prices and CDS spreads was investigated for an international sample of banks, and the results suggest that some systemically important banks can increase their value by downsizing or splitting up, as they have become too big to save, potentially reversing the trend to ever larger banks.
Abstract: Deteriorating public finances around the world raise doubts about countries’ abilities to bail out their largest banks. For an international sample of banks, this paper investigates the impact of government indebtedness and deficits on bank stock prices and CDS spreads. Overall, bank stock prices reflect a negative capitalization of government debt and they respond negatively to deficits. We present evidence that in 2008 systemically large banks saw a reduction in their market valuation in countries running large fiscal deficits. Furthermore, the change in bank CDS spreads in 2008 relative to 2007 reflects countries’ deterioration of public deficits. Our results suggest that some systemically important banks can increase their value by downsizing or splitting up, as they have become too big to save, potentially reversing the trend to ever larger banks. We also document that a smaller proportion of banks are systemically important - relative to GDP - in 2008 than in the two previous years, which could reflect these private incentives to downsize.
296Â citations
TL;DR: In this paper, the authors study whether better capitalized banks fared better in terms of stock returns during the financial crisis and find that the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio, and there is evidence that higher quality forms of capital such as Tier 1 capital were more relevant.
Abstract: Using a multi-country panel of banks, the authors study whether better capitalized banks fared better in terms of stock returns during the financial crisis. They differentiate among various types of capital ratios: the Basel risk-adjusted ratio; the leverage ratio; the Tier I and Tier II ratios; and the common equity ratio. They find several results: (i) before the crisis, differences in capital did not affect subsequent stock returns; (ii) during the crisis, higher capital resulted in better stock performance, most markedly for larger banks and less well-capitalized banks; (iii) the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio; (iv) there is evidence that higher quality forms of capital, such as Tier 1 capital, were more relevant. They also examine the relationship between bank capitalization and credit default swap (CDS) spreads.
245Â citations
TL;DR: In this paper, the impact of government indebtedness and deficits on bank stock prices and credit default swap spreads was investigated for an international sample of banks and the results of the analysis suggest that some systemically important banks can increase their value by downsizing or splitting up, as they have become too big to save.
Abstract: Deteriorating public finances around the world raise doubts about countries' abilities to bail out their largest banks. For an international sample of banks, this paper investigates the impact of government indebtedness and deficits on bank stock prices and credit default swap spreads. Overall, bank stock prices reflect a negative capitalization of government debt and they respond negatively to deficits. The authors present evidence that in 2008 systemically large banks saw a reduction in their market valuation in countries running large fiscal deficits. Furthermore, the change in bank credit default swap spreads in 2008 relative to 2007 reflects countries' deterioration of public deficits. The results of the analysis suggest that some systemically important banks can increase their value by downsizing or splitting up, as they have become too big to save, potentially reversing the trend to ever larger banks. The paper also documents that a smaller proportion of banks are systemically important -- relative to gross domestic product -- in 2008 than in the two previous years, which could reflect private incentives to downsize.
166Â citations
TL;DR: In this paper, a multi-pronged approach is proposed to analyze competition in the banking sector using Jordan as an example, where the authors examine the extent to which the market is contestable (that is, has low barriers to bank entry and exit), an evaluation of the behavior of bank spreads, and an assessment of non-structural and direct measures of bank competition.
Abstract: This paper proposes a framework to analyze competition in the banking sector using Jordan as an example. In particular, the paper pursues a multi-pronged approach to analyze competition including (i) an examination of the extent to which the market is contestable (that is, has low barriers to bank entry and exit), (b) an evaluation of the behavior of bank spreads, and (iii) an assessment of non-structural and direct measures of bank competition such as the H-statistic and the Lerner Index. This approach provides a more comprehensive framework to examine competition in the banking sector, compared with the commonly used alternative of looking only at bank concentration figures. In the case of Jordan, the analysis indicates that although concentration has declined, competition in the country is low and has decreased over time.
100Â citations
Posted Content•
TL;DR: Investigation of the impact of government indebtedness and deficits on bank stock prices and credit default swap spreads in 2008 suggests that some systemically important banks can increase their value by downsizing or splitting up, potentially reversing the trend to ever larger banks.
Abstract: Deteriorating public finances around the world raise doubts about countries'abilities to bail out their largest banks. For an international sample of banks, this paper investigates the impact of government indebtedness and deficits on bank stock prices and credit default swap spreads. Overall, bank stock prices reflect a negative capitalization of government debt and they respond negatively to deficits. The authors present evidence that in 2008 systemically large banks saw a reduction in their market valuation in countries running large fiscal deficits. Furthermore, the change in bank credit default swap spreads in 2008 relative to 2007 reflects countries'deterioration of public deficits. The results of the analysis suggest that some systemically important banks can increase their value by downsizing or splitting up, as they have become too big to save, potentially reversing the trend to ever larger banks. The paper also documents that a smaller proportion of banks are systemically important -- relative to gross domestic product -- in 2008 than in the two previous years, which could reflect private incentives to downsize.
64Â citations
TL;DR: The authors investigated corruption and tax evasion and their firm-level determinants across 25,000 firms in 57 countries, a large fraction of which are small and medium enterprises in developing countries.
Abstract: This paper investigates corruption and tax evasion and their firm-level determinants across 25,000 firms in 57 countries, a large fraction of which are small and medium enterprises in developing countries Firms that pay more bribes also evade more taxes Corruption acts as a tax on innovation, particularly that of small and young firms Innovating firms pay a larger percentage of their revenues in bribes to government officials than non-innovating firms They do not, however, pay more protection money to private parties than other firms Comparing the magnitudes of bribes and taxes evaded, innovating firms and firms that use formal finance are more likely to be net victims The findings point to the challenges facing innovators in developing countries and the role of banks in curbing corruption and tax evasion
53Â citations
Posted Content•
TL;DR: In this article, the authors studied whether compliance with the Basel Core Principles for effective banking supervision (BCPs) is associated with bank soundness and found that neither the overall index of BCP compliance nor its individual components are robustly associated with the bank risk measured by Z-scores.
Abstract: This paper studies whether compliance with the Basel Core Principles for effective banking supervision (BCPs) is associated with bank soundness. Using data for over 3,000 banks in 86countries, we find that neither the overall index of BCP compliance nor its individual components are robustly associated with bank risk measured by Z-scores. We also fail to find a relationship between BCP compliance and systemic risk measured by a system-wide Zscore.
37Â citations
Posted Content•
TL;DR: The Financial Development and Structure Database (FDDS) as mentioned in this paper provides indicators on the size, efficiency, and stability of banks, nonbank financial institutions, and equity and bond markets over 1960-2007.
Abstract: This article introduces the updated and expanded version of the Financial Development and Structure Database. The database includes indicators on the size, efficiency, and stability of banks, nonbank financial institutions, and equity and bond markets over 1960-2007. It also contains indicators of financial globalization.
Posted Content•
TL;DR: In this article, the authors study whether better capitalized banks fared better in terms of stock returns during the financial crisis and find that the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio, and there is evidence that higher quality forms of capital such as Tier 1 capital were more relevant.
Abstract: Using a multi-country panel of banks, the authors study whether better capitalized banks fared better in terms of stock returns during the financial crisis. They differentiate among various types of capital ratios: the Basel risk-adjusted ratio; the leverage ratio; the Tier I and Tier II ratios; and the common equity ratio. They find several results: (i) before the crisis, differences in capital did not affect subsequent stock returns; (ii) during the crisis, higher capital resulted in better stock performance, most markedly for larger banks and less well-capitalized banks; (iii) the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio; (iv) there is evidence that higher quality forms of capital, such as Tier 1 capital, were more relevant. They also examine the relationship between bank capitalization and credit default swap (CDS) spreads.
TL;DR: In this article, the authors study whether better capitalized banks experienced higher stock returns during the financial crisis and find that the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio.
Abstract: Using a multi-country panel of banks, we study whether better capitalized banks experienced higher stock returns during the financial crisis. We differentiate among various types of capital ratios: the Basel risk-adjusted ratio; the leverage ratio; the Tier I and Tier II ratios; and the tangible equity ratio. We find several results: (i) before the crisis, differences in capital did not have much impact on stock returns; (ii) during the crisis, a stronger capital position was associated with better stock market performance, most markedly for larger banks; (iii) the relationship between stock returns and capital is stronger when capital is measured by the leverage ratio rather than the risk-adjusted capital ratio; (iv) higher quality forms of capital, such as Tier 1 capital and tangible common equity, were more relevant.
TL;DR: In this paper, the authors studied whether compliance with the Basel Core Principles for effective banking supervision (BCPs) is associated with bank soundness and found that neither the overall index of BCP compliance nor its individual components are robustly associated with the bank risk measured by Z-scores.
Abstract: This paper studies whether compliance with the Basel Core Principles for effective banking supervision (BCPs) is associated with bank soundness. Using data for over 3,000 banks in 86countries, we find that neither the overall index of BCP compliance nor its individual components are robustly associated with bank risk measured by Z-scores. We also fail to find a relationship between BCP compliance and systemic risk measured by a system-wide Zscore.
Journal Article•
TL;DR: This article analyzed the world distribution of income and found that autocratic states trade less than non-autocratic states, by Tokes Aidt and Martin Gassebner, and the effect of refugee inflows on host communities.
Abstract: This issue includes the following: On analyzing the world distribution of Income, by Anthony B. Atkinson and Andrea Brandolini. Do autocratic states trade less? by Tokes Aidt and Martin Gassebner. Financial institutions and markets across countries and over time: the updated financial development and structure data base, by Thorston Beck, Asli Demirgc-Kunt, and Ross Levine. Early academic performance, grade repetition, and school attainment in Senegal: a panel data analysis, by Peter Glick and David E. Sahn. Technology adoption and the investment climate: firm-level evidence for Eastern Europe and Central Asia, by Paulo G. Correa, Ana M. Fernandes, and Chris J. Uregian. The effect of refugee inflows on host communities: evidence from Tanzania, by Jennifer Alix-Garcia and David Saah.
Posted Content•
TL;DR: In this article, the authors compared conventional and Islamic banks and found no significant differences in business orientation, efficiency, asset quality, or stability, and found that conventional banks that operate in countries with a higher market share of Islamic banks are more cost-effective but less stable.
Abstract: This paper discusses Islamic banking products and interprets them in the context of financial intermediation theory. Anecdotal evidence shows that many of the conventional products can be redrafted as Sharia-compliant products, so that the differences are smaller than expected. Comparing conventional and Islamic banks and controlling for other bank and country characteristics, the authors find few significant differences in business orientation, efficiency, asset quality, or stability. While Islamic banks seem more cost-effective than conventional banks in a broad cross-country sample, this finding reverses in a sample of countries with both Islamic and conventional banks. However, conventional banks that operate in countries with a higher market share of Islamic banks are more cost-effective but less stable. There is also consistent evidence of higher capitalization of Islamic banks and this capital cushion plus higher liquidity reserves explains the relatively better performance of Islamic banks during the recent crisis.
Posted Content•
TL;DR: In this article, a multi-pronged approach is proposed to analyze competition in the banking sector using Jordan as an example, where the authors examine the extent to which the market is contestable (that is, has low barriers to bank entry and exit), an evaluation of the behavior of bank spreads, and an assessment of non-structural and direct measures of bank competition.
Abstract: This paper proposes a framework to analyze competition in the banking sector using Jordan as an example. In particular, the paper pursues a multi-pronged approach to analyze competition including (i) an examination of the extent to which the market is contestable (that is, has low barriers to bank entry and exit), (b) an evaluation of the behavior of bank spreads, and (iii) an assessment of non-structural and direct measures of bank competition such as the H-statistic and the Lerner Index. This approach provides a more comprehensive framework to examine competition in the banking sector, compared with the commonly used alternative of looking only at bank concentration figures. In the case of Jordan, the analysis indicates that although concentration has declined, competition in the country is low and has decreased over time.
Posted Content•
TL;DR: This article investigated corruption and tax evasion and their firm-level determinants across 25,000 firms in 57 countries, a large fraction of which are small and medium enterprises in developing countries.
Abstract: This paper investigates corruption and tax evasion and their firm-level determinants across 25,000 firms in 57 countries, a large fraction of which are small and medium enterprises in developing countries. Firms that pay more bribes also evade more taxes. Corruption acts as a tax oninnovation, particularly that of small and young firms. Innovating firms pay a larger percentage of their revenues in bribes to government officials than non-innovating firms. They do not, however, pay more protection money to private parties than other firms. Comparing the magnitudes of bribes and taxes evaded, innovating firms and firms that use formal finance are more likely to be net victims. The findings point to the challenges facing innovators in developing countries and the role of banks in curbing corruption and tax evasion.
Posted Content•
TL;DR: In this article, the authors studied whether compliance with the Basel Core Principles for effective banking supervision (BCPs) is associated with bank soundness and found that neither the overall index of BCP compliance nor its individual components are robustly associated with the bank risk measured by Z-scores.
Abstract: This paper studies whether compliance with the Basel Core Principles for effective banking supervision (BCPs) is associated with bank soundness. Using data for over 3,000 banks in 86countries, we find that neither the overall index of BCP compliance nor its individual components are robustly associated with bank risk measured by Z-scores. We also fail to find a relationship between BCP compliance and systemic risk measured by a system-wide Zscore.