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How a regulatory capital requirement affects banks’ productivity: an application to emerging economies

Duygun, Meryem; Shaban, Mohamed; Sickles, Robin C.; Weyman-Jones, Thomas

Authors

MERYEM DUYGUN Meryem.Duygun@nottingham.ac.uk
Aviva Chair in Risk and Insurance

Mohamed Shaban

Robin C. Sickles

Thomas Weyman-Jones



Abstract

This paper presents a novel approach to measure efficiency and productivity decomposition in the banking systems of emerging economies with a special focus on the role of equity capital. We model the requirement to hold levels of a fixed input, i.e. equity, above the long run equilibrium level or, alternatively, to achieve a target equity-asset ratio. To capture the effect of this under-leveraging, we allow the banking system to operate in an uneconomic region of the technology. Productivity decomposition is developed to include exogenous factors such as policy constraints. We use a panel data set of banks in emerging economies during the financial upheaval period of 2005–2008 to analyse these ideas. Results indicate the importance of the capital constraint in the decomposition of productivity.

Journal Article Type Article
Publication Date Dec 1, 2015
Print ISSN 0895-562X
Publisher BMC
Peer Reviewed Peer Reviewed
Volume 44
Issue 3
Pages 237-248
APA6 Citation Duygun, M., Shaban, M., Sickles, R. C., & Weyman-Jones, T. (2015). How a regulatory capital requirement affects banks’ productivity: an application to emerging economies. Journal of Productivity Analysis, 44(3), 237-248. doi:10.1007/s11123-015-0451-1
DOI https://doi.org/10.1007/s11123-015-0451-1
Keywords Banking Efficiency and productivity analysis Shadow price Cost function Regulated capital Bank capitalization
Publisher URL https://link.springer.com/article/10.1007/s11123-015-0451-1
Additional Information JEL Classification
C23 D24 G21
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