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Performance and Merton-type default risk of listed banks in the EU: A panel VAR approach

journal contribution
posted on 2023-06-08, 11:52 authored by Anastasia Koutsomanoli-Filippaki, Emmanuel Mamatzakis
This paper provides empirical evidence that sheds new light into the dynamic interactions between risk and efficiency, a highly debated issue. First, we estimate three alternative measures of bank performance, by employing a directional distance function framework, along with a cost frontier and a profit function. As a second step, we calculate a Merton-type bank default risk. Then, we employ a panel VAR analysis, which allows the examination of the underlying relationships between efficiency and risk without applying any a priori restrictions. Most evidence shows that the effect of a one standard deviation shock of the distance to default on inefficiency is negative and substantial. There is some evidence of a reverse causation. As part of a sensitivity analysis, we extent our study to investigate the relationship between efficiency and default risk for banks with different types of ownership structures and across financial systems with different levels of development.

History

Publication status

  • Published

File Version

  • Published version

Journal

Journal of Banking and Finance

ISSN

0378-4266

Publisher

Elsevier

Issue

11

Volume

33

Page range

2050-2061

Department affiliated with

  • Business and Management Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2012-06-27

First Compliant Deposit (FCD) Date

2012-06-14

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