Competition and risk-taking in investment banking

Degl’Innocenti, Marta, Fiordelisi, Franco, Girardone, Claudia and Radić, Nemanja (2019) Competition and risk-taking in investment banking. Financial Markets, Institutions & Instruments, 28 (2). pp. 241-260. ISSN 0963-8008 (doi:10.1111/fmii.12113)

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Abstract

How does competition affect the investment banking business and the risks individual institutions are exposed to? Using a large sample of investment banks operating in seven developed economies over 1997-2014, we apply a panel VAR model to examine the relationships between competition and risk without assuming any a priori restrictions. Our main finding is that investment banks’ higher risk exposure, measured as a long-term capital-at-risk and return volatility, was facilitated by greater competitive pressures for both boutique investment banks and full service investment banks. Overall, we find some evidence that more competition leads to more fragility before and during the recent financial crisis.

Item Type: Article
Research Areas: A. > Business School > Accounting and Finance
Item ID: 22877
Notes on copyright: This is the peer reviewed version of the following article: Degl'Innocenti, M, Fiordelisi, F, Girardone, C, Radić, N. Competition and risk‐taking in investment banking. Financial Markets, Inst. & Inst. 2019; 28: 241– 260, which has been published in final form at https://doi.org/10.1111/fmii.12113. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
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Depositing User: Nemanja Radic
Date Deposited: 09 Nov 2017 16:25
Last Modified: 20 Apr 2019 06:04
URI: https://eprints.mdx.ac.uk/id/eprint/22877

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