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Financial frictions, bank efficiency and risk: Evidence from the eurozone

Chortareas, GE and Girardone, C and Ventouri, A (2011) 'Financial frictions, bank efficiency and risk: Evidence from the eurozone.' Journal of Business Finance and Accounting, 38 (1-2). 259 - 287. ISSN 0306-686X

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Abstract

This paper employs a simultaneous equations approach to investigate the dynamics between financial frictions, efficiency and risk for eurozone's commercial banks. We consider two related channels through which financial frictions may arise: informational and market structure imperfections, and allow for a possible reverse causation from efficiency to banks' asset quality. The findings validate the presence of both channels of financial frictions and are consistent with the efficiency-lending quality hypothesis that low efficiency signals poor asset quality loans. Finally, our findings suggest that policies aimed at constraining banks' degree of openness may ultimately direct management choices towards riskier investments. © 2011 Blackwell Publishing Ltd.

Item Type: Article
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Claudia Girardone
Date Deposited: 21 Nov 2011 09:53
Last Modified: 04 Dec 2017 22:45
URI: http://repository.essex.ac.uk/id/eprint/1526

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