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J. Risk Financial Manag. 2017, 10(3), 15; https://doi.org/10.3390/jrfm10030015

Trade Openness and Bank Risk-Taking Behavior: Evidence from Emerging Economies

1
School of Economics and Management, China University of Geosciences Wuhan, Wuhan 430074, China
2
International School, East China Jiao Tong University, Nanchang 330013, China
3
School of Public Administration, China University of Geosciences Wuhan, Wuhan 430074, China
*
Author to whom correspondence should be addressed.
Received: 22 June 2017 / Revised: 21 July 2017 / Accepted: 25 July 2017 / Published: 29 July 2017
(This article belongs to the Special Issue Financial Stability and Regulation / Basel III)
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Abstract

In this paper, we examine the impact of trade openness on bank risk-taking behavior. Using a panel dataset of 291 banks from 37 emerging countries over the period from 1998 to 2012, we find that higher trade openness decreases bank risk-taking. The results are robust when we use alternative bank risk-taking proxies and alternative estimation methods. We argue that trade openness provides diversification opportunities to banks in lending activities, which decrease overall bank risk. Further to this end, we observe that higher trade openness helps domestic banks to smooth out income volatility and decreases the impact of a financial crisis on banks. View Full-Text
Keywords: trade openness; bank risk-taking; financial crisis; Z-score trade openness; bank risk-taking; financial crisis; Z-score
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
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Ashraf, B.N.; Arshad, S.; Yan, L. Trade Openness and Bank Risk-Taking Behavior: Evidence from Emerging Economies. J. Risk Financial Manag. 2017, 10, 15.

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