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Determining management behaviour in European banking

2004; Elsevier BV; Volume: 28; Issue: 10 Linguagem: Inglês

10.1016/j.jbankfin.2003.09.010

1872-6372

Jonathan Williams,

Housing Market and Economics

This paper determines management behaviour for European savings banks between 1990 and 1998. Following the Granger causality approach of Berger and DeYoung [Journal of Banking and Finance 21 (1997) 849], we examine the intertemporal relationships between loan loss provision, efficiency and capitalisation for European banks. In so doing, we provide a robustness test of the Berger and DeYoung results for US banks. The possible relationships between the variables imply different modes of management behaviour namely bad management, bad luck, skimping, and moral hazard behaviour. The econometric results suggest that the most pressing management problem for European banks is bad management. Generally speaking, the European findings are inconsistent with previous results from the US. One notable difference in management behaviour between European and US banks is that the former do not appear to engage in skimping behaviour. The European results are sensitive to the number of lags included in the model.