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.
|Translated title of the contribution||Disciplina de mercado en el sistema bancario centroamericano|
|Number of pages||19|
|Journal||Contaduria y Administracion|
|Publication status||Published - 1 Dec 2017|
All Science Journal Classification (ASJC) codes
- Business, Management and Accounting(all)