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Title: Market discipline, large bank dominance and bank valuation in an emerging market
Author: Abuzayed, Bana
ISNI:       0000 0001 3392 7302
Awarding Body: University of Wales, Bangor
Current Institution: Bangor University
Date of Award: 2007
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This thesis comprises three papers that analyses important issues relating to the banking sector in an emerging market. In particular, we examine depositor discipline, large bank dominance and bank valuation issues focusing on the Jordanian banking system. Paper 1 examines how depositors behave towards bank risk in emerging markets. It seeks to investigate whether depositors are able to recognise bank risks and penalise risky banks through the changes in deposits and interest paid to depositors. Taking into account the fact that effective depositors' discipline does not only involve depositors' reactions to bank risk, but also the subsequent response from the banks, the paper tests for bank's responses to depositors' signals in the market allowing for banks' asymmetric response to the loss of deposits. We find that depositors are able to discipline banks behaviour through both quantity and price. However, the results show that depositors' recognition of banks' behaviour is strongly influenced by financial crises. On the other hand, in contrast to other studies, the analysis suggests that the introduction of an explicit deposit insurance system has no strong significant influence on depositors' discipline. Moreover, we find that banks react to depositors' actions by improving bank earnings more than enhancing other fundamentals. Paper 2 explores intra-industry information transfer in the banking sector and empirically assesses the large bank dominance issue within the framework of returns and volatility spillovers. Using two financial methodologies, Vector Error Correction (VEC) and Generalized Autoregressive Heteroscedastic (GARCH) models, we find evidence of significant intra-industry information channelled through not only the level of intra-industry returns but also through the common volatility returns without a clear dominance effect from large to small banks. This suggests that investors appear to be indifferent to the signal quality of information between large and small banks. These findings concerning return and volatility relations between large and small banks have important implication for regulators in emerging markets. Regulators should look for stabilizing potentially adverse effects of a negative event(s) at all banks in the system irrespective of their size. Paper 3 aims to analyse the main reasons for the difference between market and book values in the banking industry. More specifically, it seeks to examine whether earnings and its components are relevant and sufficient to bridge the gap between these two values and if bank efficiency has incremental information content in this relation. This study applies the non-parametric Data Envelopment Analysis (DEA) approach to estimate the relative cost efficiency of banks, and employs the Truman's et al., (2000) valuation methodology. We find that the component items of net income are important in explaining bank market value. Furthermore; banks' operational efficiency adds incremental information in explaining the gap between market and book values. The results are robust to the inclusion of other explanatory) variables such as credit and solvency risks.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available