Are Charter Value and Supervision Aligned? A Segmentation Analysis
26 Pages Posted: 15 May 2017
Date Written: May 15, 2017
Abstract
Previous work suggests that the charter value hypothesis is theoretically grounded and empirically supported, but not universally. Accordingly, this paper aims to perform an analysis of the relations among charter value, risk taking, and supervision that take into account the relations’ complexity. Specifically, using the CAMELS rating system as a general framework for supervision, we carry out a segmentation analysis of how charter value relates to risk and supervision by means of classification and regression tree techniques. The sample covers the period 2005–2014 and consists of listed banks in countries that were members of the eurozone when it came into existence, along with Greece. Our results reflect the complexity of the relations among charter value, supervision, and risk. Indeed, supervision and charter value seem aligned regarding only some types of risk, but the relation is not constant through time or across countries.
Keywords: Bank supervision, CAMELS, CARTS, charter value, risk
JEL Classification: G21, G28
Suggested Citation: Suggested Citation