Malaysian bank capital and risk profiles: Causality tests

Ahmad, Rubi and Skully, Michael and Ariff, Mohamed (2008) Malaysian bank capital and risk profiles: Causality tests. Asian Journal of Business and Accounting, 20 (4). pp. 340-346. ISSN 1985-4064, DOI

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The structural relationships among bank capital and risk taking are empirically examined by utilising unit root tests and Granger causality tests using the time series data. The Granger causality test results are not very robust with respect to different types of banking institutions, risk variables (NPL and RWA) and time period. With merchant banks and finance companies aggregate data, there appears to be an absence of a Granger causality effect in the Malaysian banking sector. The evidence for Granger causality running from capital to risk or risk to capital appears to be statistically significant when the test is performed using the commercial bank aggregate data. Our results also show that there is no strong indication that using non-performing loans implies likelihood of finding a significant relationship. Finally, the evidence of lead-lag relationship between capital and risk is generally weak before the1997-98 banking crisis.

Item Type: Article
Uncontrolled Keywords: Bank risk; Capital and earnings; Capital ratios; Risk index; Risk-based capital
Subjects: H Social Sciences > HG Finance
H Social Sciences > HG Finance > Banking
Divisions: Faculty of Business and Economics
Depositing User: Ms. Juhaida Abd Rahim
Date Deposited: 01 Sep 2020 06:50
Last Modified: 01 Sep 2020 06:50

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