search query: @indexterm LIABILITIES / total: 56
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| Author: | Esty, B. C. |
| Title: | The impact of contingent liability on commercial bank risk taking. |
| Journal: | Journal of Financial Economics
1998 : FEB, VOL. 47:2, p. 189-218 |
| Index terms: | RISK AGENCY THEORY BANKS CONTINGENCY THEORY LIABILITIES |
| Language: | eng |
| Abstract: | From 1863-1935, refulators imposed contingent liability on bank shareholders to discourage risk taking. Using data from 1900 to 1915, the author finds that banks subject to stricter liability rules have lower equity and asset volatility, hold a lower proportion of risky assets, and are less likely to increase their investment in risky assets when their net worth declines, consistent with the hypothesis that stricter liability discourages commercial bank risk taking. These findings provide lessons for current bank regulatory policy and show that the shape of the residual claimant's payoff function has a significant impact on managerial incentives and firm performance. |
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