The Financial Structure and Systemic Risk
Financial structures matter not only for economic development, but also for systemic risk. This study is among the first to operationalize three new risk measures, two of which are skewness parameters and one of which is a tail index parameter to proxy for systemic risk. Unlike earlier studies, a much larger sample is used including 303 publicly traded financial firms across 30 countries. Quantile regression is used as main methodological approach which allows for non-linearity testing and differences in size effects across quantiles. The main findings are: (1) bank-based financial systems on average entail more systemic risk than market-based systems; (2) the relationship between the financial structure and systemic risk is non-linear; (3) a newly proposed skewness parameter (alpha2), that proxies contagion by measuring the volatility impact on a time-series of returns for an institution conditional upon arrival of market information, seems most promising in measuring systemic risk; (4) developing bank-financing increases systemic risk across all quantiles, developing stock market and debt market financing decreases it, with stock market financing being more effective in bank-based systems and debt market financing being more effective in market-based systems.
Faculteit der Managementwetenschappen