{"title":"The impact of supervision on bank risk: empirical evidence from the Tunisian context","authors":"Sana Belgacem, Manel Hadriche, Fethi Belhaj","doi":"10.1108/emjb-01-2023-0006","DOIUrl":null,"url":null,"abstract":"Purpose The purpose of this paper is to examine the impact of supervision on banking risk to determine whether prudential measures taken especially after financial crises are effective in limiting banking risks. Design/methodology/approach The empirical study focused on 210 annual reports of almost all Tunisian banks during the 2010–2019 period. Banking supervision effectiveness is measured by enforcement outputs (i.e. on-site audits and sanctions). The generalized least squares method of multivariate analysis was used to analyze this study. Findings The results show that supervision set up and on-site audits reduce bank risk, while the relationship between sanctions and risk appears to be non-significant. The results still hold after robustness tests by changing the bank's risk-taking indicators. Practical implications This study has important implications for managers and investors in the Tunisian context. In particular, the findings provide microevidence for the impact of supervision in Tunisian banks to reduce their risk-taking. The empirical results have important implications for the decision-making of bank managers and regulators in Tunisia as well as for relevant actors in similar emerging economies. Originality/value This study extends the previous literature on supervision by examining the relationship between supervision and banking risk in an emerging country, which has been little explored, Tunisia in particular. Furthermore, this study examines whether supervision reduces risk borne by Tunisian banks, and to the best of the researchers' knowledge, it is one of the pioneering studies of supervision in the Tunisian market. This latter market has different economic, political and social attributes compared to developed countries. So, this paper helps to clarify the impact of supervision enforcement and macroprudential policies. In addition, this paper strongly contributes to the various stakeholders “understanding of the importance and implication of supervision practices. However, since banks tend not to reduce their participation in risky activities to seek higher profits, supervisory policymakers and practitioners should also take a closer look at the composition of banks” investment portfolios to reduce moral hazard and regulatory arbitrage behavior. Empirically, the authors measure supervision by on-site audits and sanctions and examine how they affect bank risk level, which was never approached in Tunisia.","PeriodicalId":46475,"journal":{"name":"EuroMed Journal of Business","volume":"16 1","pages":"0"},"PeriodicalIF":3.8000,"publicationDate":"2023-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"EuroMed Journal of Business","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1108/emjb-01-2023-0006","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS","Score":null,"Total":0}
引用次数: 0
Abstract
Purpose The purpose of this paper is to examine the impact of supervision on banking risk to determine whether prudential measures taken especially after financial crises are effective in limiting banking risks. Design/methodology/approach The empirical study focused on 210 annual reports of almost all Tunisian banks during the 2010–2019 period. Banking supervision effectiveness is measured by enforcement outputs (i.e. on-site audits and sanctions). The generalized least squares method of multivariate analysis was used to analyze this study. Findings The results show that supervision set up and on-site audits reduce bank risk, while the relationship between sanctions and risk appears to be non-significant. The results still hold after robustness tests by changing the bank's risk-taking indicators. Practical implications This study has important implications for managers and investors in the Tunisian context. In particular, the findings provide microevidence for the impact of supervision in Tunisian banks to reduce their risk-taking. The empirical results have important implications for the decision-making of bank managers and regulators in Tunisia as well as for relevant actors in similar emerging economies. Originality/value This study extends the previous literature on supervision by examining the relationship between supervision and banking risk in an emerging country, which has been little explored, Tunisia in particular. Furthermore, this study examines whether supervision reduces risk borne by Tunisian banks, and to the best of the researchers' knowledge, it is one of the pioneering studies of supervision in the Tunisian market. This latter market has different economic, political and social attributes compared to developed countries. So, this paper helps to clarify the impact of supervision enforcement and macroprudential policies. In addition, this paper strongly contributes to the various stakeholders “understanding of the importance and implication of supervision practices. However, since banks tend not to reduce their participation in risky activities to seek higher profits, supervisory policymakers and practitioners should also take a closer look at the composition of banks” investment portfolios to reduce moral hazard and regulatory arbitrage behavior. Empirically, the authors measure supervision by on-site audits and sanctions and examine how they affect bank risk level, which was never approached in Tunisia.
期刊介绍:
The EuroMed Journal of Business (EMJB) is the premier publication facilitating dialogue among researchers from Europe and the Mediterranean. It plays a vital role in generating and disseminating knowledge about various business environments and trends in this region. By offering an up-to-date overview of emerging business practices in specific countries, EMJB serves as a valuable resource for its readers.
As the official journal of the EuroMed Academy of Business, EMJB is committed to reflecting the economic growth seen in the European-Mediterranean region. It aims to be a focused and targeted business journal, highlighting environmental opportunities, threats, and marketplace developments in the area. Through its efforts, EMJB promotes collaboration and open dialogue among diverse research cultures and practices.
EMJB serves as a platform for debating and disseminating research findings, new research areas and techniques, conceptual developments, and practical applications across various business segments. It seeks to provide a forum for discussing new ideas in business, including theory, practice, and the issues that arise within the field.