Investors' Perception of Bank Risk Management: Multivariate Analysis Techniques

Document Type : Original Article

Authors

1 PHD student in Finance, Central Tehran Branch, Islamic Azad University

2 Department of Financial Management, Central Tehran Branch, Islamic Azad University, mir. (Corresponding author)

3 Department of Financial Management, Islamshahr Branch, Islamic Azad University

Abstract

According to the nature of their activities, banks are exposed to various types of risks. Hence, risk management is at the heart of financial institutions management. In this study, we intend to summarize the information content of bank financial statements on diverse risks faced by banks and then determine how stock markets react to bank's risk management behavior. The methodology used in this study is the Principal Component Analysis (PCA) and Discriminant Analysis (DA). In this research, we evaluate the status of risk management in listed banks on Tehran Stock Exchange through financial statements analysis and then investigate its relationship with banks' stock returns to determine whether capital market participants take the status of risk management into account in their pricing decisions or not. The results show that provisions taken by banks have a meaningful relationship with the banks' stock returns. However, capital adequacy, net interest margin, and net margin of non-interest income have no significant relationship with stock returns.

Keywords

References

1)     Amirhosseini, Z. (2014). Evaluation of portfolio allocation and optimal mix of resources and consumption-based banking profitability in the management of branches of the Agricultural Bank of Kermanshah. MA thesis Islamic Azad University of Tehran.
2)     Buston, C. S. (2016). Active risk management and banking stability. Journal of Banking & Finance, 72, S203-S215.
3)     Calomiris, C. W., & Carlson, M. (2016). Corporate governance and risk management at unprotected banks: National banks in the 1890s. Journal of Financial Economics, 119(3), 512-532.
4)     Caner, S., Ozyildirim, S., & Ungan, A. E. (2007). How Sensitive are Shareholders to Bank Risk? Social Science Research Network, 1-29.
5)     Giovannoni, E., Quarchioni, S., & Riccaboni, A. (2016). The role of roles in risk management change: The case of an Italian bank. European Accounting Review, 25(1), 109-129.
6)     Hryckiewicza, A., & Kozłowski, Ł. (2017). Banking business models and the nature of financial crisis. Journal of International Money and Finance, 71, 1-24.
7)     Jawadi, F., & Louhichi, W. (2017). Overview on the recent developments of banking and risk management. Research in International Business and Finance, 39, 896–898.
8)     Lim, C. Y., Woods, M., Humphrey, C., & Seow, J. L. (2017). The paradoxes of risk management in the banking sector. The British Accounting Review, 49(1), 75-90.
9)     Motameni, A. R., Javadzadeh, M., & Tizfahm, J. (2011). Evaluation of Strategic Performance of Banks. Strategic Management Studies, 1(1), 141-159.
10)  Sensarma, R., & Jayadev, M. (2009). Are bank stocks sensitive to risk management? The Journal of Risk Finance, 10(1), 7-22.
11)  Williams, B. (2016). The impact of non-interest income on bank risk in Australia. Journal of Banking & Finance, 73, 16-37.
 
 
International Journal of Finance & Managerial Accounting
Volume 2, Issue 6
August 2017
Pages 37-45

Files

Share

How to cite

Statistics