This paper should not be reported as representing the views of the European Central Bank (ECB). T... more This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB.
Laeven examines the effect of product and geographic high levels. Geographic diversification is v... more Laeven examines the effect of product and geographic high levels. Geographic diversification is valuable at low diversification on firm value for a sample of 1,914 levels, however. corporations in 18 countries. His results indicate that The author finds that insider ownership is associated both product and geographic diversification destroy with less diversification, across both product and value at high levels of diversification, suggesting that geographic segments, suggesting that insiders view agency and influence costs arising from the increased corporate diversification as value destroying. complexity outweigh the benefits of diversification at This paper-a product of the Financial Sector Strategy and Policy Department-is part of a larger effort in the department to study corporate financing problems around the world. Copies of the paper are available free from the World Bank,
This paper examines the impact of bank regulations, concentration, inflation and national institu... more This paper examines the impact of bank regulations, concentration, inflation and national institutions on bank net interest margins using data on over 1,400 banks across 72 countries while controlling for bank-specific characteristics. The data indicate that tighter regulations on bank entry and bank activities boost net interest margins. Inflation also exerts a robust, positive impact on bank margins. While concentration is positively associated with net interest margins, this relationship breaks down when controlling for regulatory impediments to competition and inflation. Furthermore, bank regulations become insignificant when controlling for national indicators of economic freedom or property rights protection, while these institutional indicators robustly explain cross-bank net interest margins. Thus, bank regulations cannot be viewed in isolation; they reflect broad, national approaches to private property and competition.
Laeven calculates gross safety net subsidies for a large findings suggest that the moral hazard b... more Laeven calculates gross safety net subsidies for a large findings suggest that the moral hazard behavior of a bank sample of banks in 12 countries to assess the relationship depends on its institutional environment and its between the risk-taking behavior of banks and certain corporate governance structure. bank characteristics. He finds that gross safety net Laeven also presents a matrix that shows estimates of subsidies are higher for banks that have concentrated safety net subsidies for a range of given combinations of ownership, that are affiliated with a business group, that equity volatilities and equity-to-deposit ratios. These are small, or that have high credit growth, and for banks figures could be used as input to an early warning system in countries with low GDP per capita, high inflation, or for both individual and systemic banking problems. poor quality and enforcement of the legal system. These This paper-a product of the Financial Sector Strategy and Policy Department-is part of a larger effort in the department to study the performance and risks of banks. Copies of the paper are available free from the World Bank,
Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.
Financial liberalization reduces imperfections in Liberalization Relax financial markets by reduc... more Financial liberalization reduces imperfections in Liberalization Relax financial markets by reducing Financing Constrain s *the agency costs of financial leverage. Small firms gain on Firm s? most from liberalization, because the favoritism of preferential credit directed to Luc Laeven large firms tends to disappear under liberalization.
This paper illustrates the trends in deposit insurance adoption. It discusses the crosscountry di... more This paper illustrates the trends in deposit insurance adoption. It discusses the crosscountry differences in design, and synthesizes the policy messages from crosscountry empirical work as well as individual country experiences. The paper develops practical lessons from all this work and distills the evidence into a set of principles of good design. Crosscountry empirical research and individual-country experience confirm that, for at least the time being, officials in many countries would do well to delay the installation of a deposit-insurance system.
The goal of this paper is to improve our understanding of the costs and benefits of explicit depo... more The goal of this paper is to improve our understanding of the costs and benefits of explicit deposit insurance. To this end, we compare the opportunity-cost value of deposit insurance services for a large sample of banks drawn from countries with or without explicit deposit insurance. After correcting for certain bank-and country-specific factors, we find that the existence of explicit deposit insurance raises the opportunity-cost value of deposit insurance, but that the presence of a sound legal system with proper enforcement of rules reduces the adverse effects of explicit deposit insurance on the opportunity-cost value of deposit insurance services. Our findings suggest that moral hazards and other incentive problems created by existing governmental deposit insurance schemes differ in magnitude between different types of banks and among different countries, and that explicit deposit insurance should not be introduced in countries with weak institutional environments.
The Private Benefits of Controlling Complex Bank Holding Companies
ABSTRACT This paper assesses the impact of the geographic diversification of bank holding company... more ABSTRACT This paper assesses the impact of the geographic diversification of bank holding company (BHC) assets across the United States on (1) their market valuations and (2) the generosity of their loans to bank executives. We find that exogenous increases in geographic diversity reduce BHC valuations and increase the frequency and size of insider loans. These findings are consistent with the view that geographic diversity makes it more difficult for shareholders and creditors to monitor bank executives, allowing corporate insiders to extract larger private benefits from controlling complex BHCs.
This paper studies the international portfolio diversification benefits in equity investing from ... more This paper studies the international portfolio diversification benefits in equity investing from the perspective of an American investor in a context of a growing market correlation. Different investment strategies employing different risk measures (standard variance, GARCH variance, CVaR, LPM (n)) are used to assess the robustness of international diversification benefits. Equity returns from 41 countries are used, including developed, emerging and frontier markets, during the period from 1988-2009. Our empirical results show that economic gains from international equity diversification are still substantial despite the growing market correlations. Interestingly, international equity diversification allows obvious reduction of returns variability and minimum loss, and this only for restricted portfolios. We found also that emerging markets continue to be an important component of well-diversified portfolios. A substantial investment in emerging and frontier markets enhances the economic gains of diversified portfolios while it does not seem to reduce portfolio returns variability and minimum loss. However, they consistently improve the risk-based performance measured by the semi variability ratio when we decrease their component in a well diversified portfolio.
The Investment Allocation of Sovereign Wealth Funds
... emerging markets conference for useful comments and/or discussions. We would like to thank Su... more ... emerging markets conference for useful comments and/or discussions. We would like to thank Supreet Arora and Masha Galeb for excellent research assistance. This paper's findings, interpretation, and conclusion are entirely those ...
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Papers by Luc Laeven