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.

Competition and risk-taking in investment banking / M. Degl'Innocenti, F. Fiordelisi, C. Girardone, N. Radic. - In: FINANCIAL MARKETS, INSTITUTIONS & INSTRUMENTS. - ISSN 0963-8008. - 28:2(2019 May), pp. 241-260. [10.1111/fmii.12113]

Competition and risk-taking in investment banking

M. Degl'Innocenti;
2019

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.
competition; investment banking; panel var; risk
Settore SECS-P/11 - Economia degli Intermediari Finanziari
mag-2019
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2434/795480
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