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Financial derivatives and bank risk : evidence from eighteen developed markets
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Huan, Xing and Parbonetti, Antonio (2019) Financial derivatives and bank risk : evidence from eighteen developed markets. Accounting and Business Research, 49 (7). pp. 847-874. doi:10.1080/00014788.2019.1618695 ISSN 0001-4788.
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Official URL: https://doi.org/10.1080/00014788.2019.1618695
Abstract
We examine the relationship between equity risk and the use of financial derivatives with a sample of 555 banks from eighteen developed markets from 2006 to 2015. Our main findings suggest that banks' use of financial derivatives increased their risk. This increase in risk can be driven by banks' use of derivatives for speculative purposes, by suboptimal hedging to obtain hedge accounting status, or from accounting mismatches that generate volatility in earnings. We also show that this relationship is nonlinear. Too-Big-To-Fail banks and those that employ a traditional retail banking business model are subject to lower idiosyncratic risk. We address endogeneity concerns using instrumental variables capturing the use of derivatives with portfolio ranking. Overall, our study contributes to understanding the impact of derivatives use on bank risk and the risk consequences of a bank’s business model choice.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HG Finance | ||||||||
Divisions: | Faculty of Social Sciences > Warwick Business School > Accounting Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Derivative securities, Financial risk management, Financial engineering, Banks and banking | ||||||||
Journal or Publication Title: | Accounting and Business Research | ||||||||
Publisher: | Taylor & Francis | ||||||||
ISSN: | 0001-4788 | ||||||||
Official Date: | 18 October 2019 | ||||||||
Dates: |
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Volume: | 49 | ||||||||
Number: | 7 | ||||||||
Page Range: | pp. 847-874 | ||||||||
DOI: | 10.1080/00014788.2019.1618695 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Reuse Statement (publisher, data, author rights): | “This is an Accepted Manuscript of an article published by Taylor & Francis in Accounting and Business Research on 30/05/2019, available online: http://www.tandfonline.com/10.1080/00014788.2019.1618695 | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 16 May 2019 | ||||||||
Date of first compliant Open Access: | 30 November 2020 | ||||||||
RIOXX Funder/Project Grant: |
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