The Impact of Market Discipline on Banks’ Capital Adequacy: Evidence From an Emerging Economy
This study presents empirical support for the role of market discipline in augmenting bank capital ratios in a competitive banking environment. Using a panel dataset on domestic commercial banks in Pakistan from 2009 to 2014, the study determines if the market penalized banks for any increase in th...
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| Format: | Article |
| Language: | English |
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Lahore School of Economics
2015-10-01
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| Series: | The Lahore Journal of Business |
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| Online Access: | https://journals.lahoreschool.edu.pk/LJB/LJB/article/view/35 |
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| author | Ayesha Afzal |
| author_facet | Ayesha Afzal |
| author_sort | Ayesha Afzal |
| collection | DOAJ |
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This study presents empirical support for the role of market discipline in augmenting bank capital ratios in a competitive banking environment. Using a panel dataset on domestic commercial banks in Pakistan from 2009 to 2014, the study determines if the market penalized banks for any increase in their risk profile through a rise in the cost of raising funds. The results point to a significant relationship between capital adequacy and other risk factors, with the cost of deposits demonstrating how depositors align the required return to the perceived risk level of the bank. These findings have important implications for policymakers as market discipline could complement the role of regulators, which would eventually lower the cost of supervision. Moreover, the focus of international reforms as seen through the implementation of Basel III should continue to be on developing a more competitive and transparent banking system.
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| format | Article |
| id | doaj-art-417b021155064cd39da0281b0644ecec |
| institution | OA Journals |
| issn | 2223-0025 2791-3139 |
| language | English |
| publishDate | 2015-10-01 |
| publisher | Lahore School of Economics |
| record_format | Article |
| series | The Lahore Journal of Business |
| spelling | doaj-art-417b021155064cd39da0281b0644ecec2025-08-20T01:57:54ZengLahore School of EconomicsThe Lahore Journal of Business2223-00252791-31392015-10-0141The Impact of Market Discipline on Banks’ Capital Adequacy: Evidence From an Emerging EconomyAyesha Afzal0Assistant Professor, Lahore School of Economics. This study presents empirical support for the role of market discipline in augmenting bank capital ratios in a competitive banking environment. Using a panel dataset on domestic commercial banks in Pakistan from 2009 to 2014, the study determines if the market penalized banks for any increase in their risk profile through a rise in the cost of raising funds. The results point to a significant relationship between capital adequacy and other risk factors, with the cost of deposits demonstrating how depositors align the required return to the perceived risk level of the bank. These findings have important implications for policymakers as market discipline could complement the role of regulators, which would eventually lower the cost of supervision. Moreover, the focus of international reforms as seen through the implementation of Basel III should continue to be on developing a more competitive and transparent banking system. https://journals.lahoreschool.edu.pk/LJB/LJB/article/view/35Basel normscapital adequacy ratiomarket discipline |
| spellingShingle | Ayesha Afzal The Impact of Market Discipline on Banks’ Capital Adequacy: Evidence From an Emerging Economy The Lahore Journal of Business Basel norms capital adequacy ratio market discipline |
| title | The Impact of Market Discipline on Banks’ Capital Adequacy: Evidence From an Emerging Economy |
| title_full | The Impact of Market Discipline on Banks’ Capital Adequacy: Evidence From an Emerging Economy |
| title_fullStr | The Impact of Market Discipline on Banks’ Capital Adequacy: Evidence From an Emerging Economy |
| title_full_unstemmed | The Impact of Market Discipline on Banks’ Capital Adequacy: Evidence From an Emerging Economy |
| title_short | The Impact of Market Discipline on Banks’ Capital Adequacy: Evidence From an Emerging Economy |
| title_sort | impact of market discipline on banks capital adequacy evidence from an emerging economy |
| topic | Basel norms capital adequacy ratio market discipline |
| url | https://journals.lahoreschool.edu.pk/LJB/LJB/article/view/35 |
| work_keys_str_mv | AT ayeshaafzal theimpactofmarketdisciplineonbankscapitaladequacyevidencefromanemergingeconomy AT ayeshaafzal impactofmarketdisciplineonbankscapitaladequacyevidencefromanemergingeconomy |