Financial openness, disclosure and bank risk-taking in MENA countries

in Emerging Markets Review (2012), 13(3), 283-300

In this paper, we analyze the risk-taking behavior of banks in emerging economies in a context of international capital mobility. Our paper highlights a new channel through which depositors can exercise ... [more ▼]

In this paper, we analyze the risk-taking behavior of banks in emerging economies in a context of international capital mobility. Our paper highlights a new channel through which depositors can exercise pressure to control risk-taking. Depositors can reallocate their savings away from their home country to the more protective system of a developed economy. We recover a classical result according to which increased competition resulting from more international financial openness induces banks to take excessive risks. We find however that sufficiently high financial openness is necessary for a positive link between financial transparency and safe risk management. Finally, we test the relationship between disclosure, financial openness and bank risk-taking for a panel of 258 banks from the MENA region and Turkey. [less ▲]