Market discipline in the Central American banking system

Edgar Demetrio Tovar-García

Research output: Contribution to journalArticle

Abstract

This article empirically tests the market discipline hypothesis in the Central American banking system. Whether the riskier banks (with the worst bank fundamentals) pay higher interest rates and attract fewer amounts of deposits. We use dynamic panel data models and the generalized method of moments (SYS GMM) estimator, and a sample of 30 banks from six Central American countries over the years 2008-2012. In contrast to most of the previous empirical literature, particularly in developed countries, in Central America we did not find evidence for market discipline. The results are robust to different indicators of the bank fundamentals, to the effect of the internal demand for funding by banks, and to other econometric methods. These findings indicate weakness in the disclosure policy of banking information.

Original languageEnglish
Pages (from-to)1591-1609
Number of pages19
JournalContaduria y Administracion
Volume62
Issue number5
DOIs
Publication statusPublished - 1 Dec 2017

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Market discipline
Banking system
Funding
Developed countries
Central America
Disclosure policy
Generalized method of moments
Interest rates
Econometric methods
Deposits
Banking
GMM estimator
Dynamic panel data model

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)

Cite this

Tovar-García, Edgar Demetrio. / Market discipline in the Central American banking system. In: Contaduria y Administracion. 2017 ; Vol. 62, No. 5. pp. 1591-1609.
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Market discipline in the Central American banking system. / Tovar-García, Edgar Demetrio.

In: Contaduria y Administracion, Vol. 62, No. 5, 01.12.2017, p. 1591-1609.

Research output: Contribution to journalArticle

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