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The Impact of Bailout on Financial Performance and Bank Risk-Taking During Financial Crisis: a Critical Systematic Review / 7- 13

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The Impact of Bailout on Financial Performance and Bank Risk-Taking During Financial Crisis: a Critical Systematic Review / 7- 13 Dety Nurfadilah / The Impact of Bailout on Financial Performance And Bank Risk-Taking During Financial Crisis: A Critical Systematic Review / 7- 13 INTERNATIONAL JOURNAL OF e-ISSN: 2622-4585 | p-ISSN: 2580-0132 ipmi BUSINESS STUDIES Vol. 3 | No. 1 (February 2019) The Impact of Bailout on Financial Performance And Bank Risk-Taking During Financial Crisis: A Critical Systematic Review Dety Nurfadilah¹* ¹Faculty of Economics, Universitas Krisnadwipayana, Jakarta 13077, Indonesia A B S T R A C T A R T I C L E I N F O The focus on the bank bailout has been increased since the global Keywords: inancial crisis in 2008 in most countries. However, previous studies Bailout, often discover the relationship between bailout and corporate Financial Crisis, governance. In this study, bank bailout literature will be reviewed Systematic Review, with the focus on the impact of bailout on bank inancial Bank Risk-Taking, performance and bank risk-taking during the inancial crisis. Financial Performance Multi-step strategy is used to collect the data from 2000 to 2016. From the 7 papers were chosen based on the criteria. This systematic review has shown that the bank bailout has a positive impact on inancial performance, however, it has a negative impact on bank risk-taking for a longer period. *Corresponding Author E-mail: © 2019 IJBS, All rights reserved. [email protected] Copyright © 2019 Authors. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. INTRODUCTION The global inancial crisis in 2007-2009 has hit Currently, 465 failed banks in United States closed the real economy of the whole world. According by the Federal Deposit Insurance Corporation to Dhameja (2010), this crisis is worse than the (FDIC) from the Initial crisis in 2008 to 2012, great depression crisis in the 1930s. This crisis is namely New Century, American Home Mortgage, spreading to the entire global inancial system. Netbank, Bear Stearns, Fannie Mae and Freddie Financial crisis triggers economic consequences Mac, Merrill Lynch, Lehman Brother, Washington of inlation, unemployment, drop in purchasing Mutual, American International Group, HSBC power and increases public doubt about its ability Finance Corporation, and so forth so on (Andrews to provide service. The global inancial crisis led et al, 2016; Karnitschnig et al, 2014; Ivashina & to a bank collapsed in the inancial sectors of Scharfstein, 2009). In Europe and Central Asia several important developed countries (Barth et region, the inancial crisis has caused the bank al., 2012). collapsed, namely Glitnir, Kaupthing and - 7 - International Journal of Business Studies Vol. 3 No. 1 ( February 2019) Landsbanki in Iceland; Bankia, CatalunyaCaixa, aid on bank crisis performance and its risk-taking. CajaSur in Spain; Parex Bank in Latvia; UBS in Switzerland; Fortis and BNP Paribas in Belgian To the best of author's knowledge, this is the irst and Luxembourg; Bank of Antigua in Eastern study to create a comprehensive systematic review Caribbean; Banco Privado Portugues in Portugal; on this issue. To date, the existing studies have Anglo Irish Bank in Ireland; BTA bank and Alliance examined the effect of bailout on bank future bank in Kazakhstan and so forth so on (White, behavior (Fisher et al., 2012; Dam and Koetter, 2008; Mclaughlin & Levring, 2008). In the Asia 2012; Gropp et al., 2011), impact of capital Paciic region, it caused the collapse of Lehman injections (Duchin and Sosyura, 2013; Berger et al. brothers in Japan and Bank West in Australia (2011); Mehran and Thakor (2011). A critical (KyodoNews, 2008; Kramer & Andrews, 2009). review of the literature was conducted to address According to Terazi and Şenel (2011), an the following question: what is the impact of unprecedentedly large number of failed banks has bailout on bank performance during the inancial increased the government attention to enacted crisis? And what is the impact of bailout on bank a range of rescue plans to help banks restore its risk-taking during the inancial crisis? health and conidence, as well as increase its inancial stability. In 2007, The US Federal Reserve This study is organized as follows: section 1 present offered a loan to several banks and made more the background of the study, section 2 describe funding available around $20bn, then European research methodology, section 3 state the result, Central Bank offered $500bn to assist commercial section 4 discuss the result, section 5 describes the banks. In 2008, United States launched Troubled limitations, and section 6 concludes the study. Asset Relief Program (TARP) with the total fund given around $700bn (Guillén, 2009), while British RESEARCH METHOD Government launched a bank rescue package Design with approximately $850 billion. According to Systematic review and narrative are used in this the International Monetary Fund (2010), Latvia study to present a critical overview of the research in the Baltic States suffered from the crisis and topic and evaluate the quality of the previous urged to ask for inancial support. The government studies (Ressing et al., 2009). A systematic review support continues until this day. In 2016, Italy is one type of literature review that collect and government approve to give fund around €20bn summarize all studies based on criteria (Khan et to support Monte Dei Paschi di Siena (BBC, 2016). al., 2003). This systematic reviews aimed to systematically examine the scientiic literature However, previous researchers argue that bailout to understand the impact of bailout on bank is making the bank worse in many ways. It performance and bank risk-taking. increases the bank risk-taking, volatility, and default risk, and create a moral hazard problem Search Strategy (Duchin and Sosyura, 2014). Unfortunately, this To achieve the research objectives, multiple-step issue is often ignored by the government and other search strategy was adopted from the previous inancial aid bodies because they are focusing study in the ield of inancial institution on “too big to fail institution” mindset. Also, the cost (International Finance Corporation, 2013), nurse of the bailout is very expensive. Every decision services (Carter and Chochinov, 2007; Jennings et made by the government will have consequences al., 2015), and construction management (Hong et on bank performance. Gerhardt and Vennet al, 2012; Yi and Wang, 2013; Osei-Kyei and Chan, (2016) added that the massive bailout program 2015). The two-step review was used to get has increased the question about the effect on a high-quality paper. At the irst stage, the authors government intervention on future bank behavior. created a list of thematic ield group about the Therefore, there is an increasing need to bailout. At the second stage, this list was narrowed understand the impact of government inancial down to sub-theme focusing on the impact on bank - 8 - Dety Nurfadilah / The Impact of Bailout on Financial Performance And Bank Risk-Taking During Financial Crisis: A Critical Systematic Review / 7- 13 performance and bank risk-taking (ig.1). In this study, a range of academic research database is used to collect the data such as SSRN A comprehensive search was carried out under website, Emerald Insight, Science Direct, Proquest, the “abstract / title / keywords”. The search Springerlink, business EBSCOHOST, and google keywords include “bailout inancial crisis”, scholar. Science Direct and Emerald Insight have “government support inancial crisis”, “bailout been considered as a database that performed corporate governance”, “bank bailout”, “bank better than another database website (Falagas performance in inancial crisis”, “bailout bank risk”, et al, 2008; Ke et al., 2009; Yuan and Shen, 2011; “bank risk-taking bailout”. In addition, the search Osei-Kyei and Chan, 2015). was restricted to the ield of study “accounting and inance”, “business, management, and Inclusion and Exclusion Criteria accounting”, “economics, econometrics, and According to Meline (2006), the process of inance”, “social science”. The third step, keywords systematic review consists of predetermined were combined using AND and OR. The full search criteria which are included and excluded from code is listed as follows: the research. Chambers (2004) added that studies are excluded from the collection of ABS-TITLE-KEY (“bailout” OR “inancial crisis” OR literature if they meet the following criteria: (1) “bank performance” OR government support” OR deinitely meet one or more of exclusion criteria, “bank bailout” OR impact bailout) AND ABS-TITLE- (2) contain ambiguous methods, (3) does not KEY (bank crisis performance” OR “bank risk- contain suficient data or statistics, or (4) does taking” OR “effect bailout”) AND SUBJAREA (busi not meet the predetermined criteria for quality. OR manag OR Acc OR econ OR soci) AND To achieve the goal of this research, several PUBYEAR N 2000 AND PUBYEAR b 2017 AND inclusion and exclusion criteria are as follows: LANGUAGE (“English”) AND SRCTYPE (j). Table 1. Inclusion and Exclusion Criteria Abstract Select website Hand-search Inclusion Criteria: identiied and and links retrieved screened explored documents (I) Published articles relevant to the impact of bank bailout 568 65 17 on bank-risk taking and inancial performance during inancial crisis. (ii) Articles published from 2006 to 2017. (iii) The article types are journals, books, literature review, Irrelevant Documents conceptual study, empirical study. articles or with Irrelevant judged unrelated scope sites appropriate (iv) Articles are written in English. 328 39 6 (v) Exploring impact of bailout on bank performance and bank risk-taking. (vi) All countries which suffered from inancial crisis. Studies not Website and (vii) Literature focusing on any types of bailout: government, meeting links all inancial authority, IMF, and etc. inclusion criteria selection criteria 17 12 Inclusion Criteria: (I) Papers in non-English language and without English translation. Articles (ii) Magazine, newspaper, or blog which are not based on included in Documents included theoretical or empirical study.
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