|Table 5<br>(i) Corre<br>|:_Regr_<br>lationo<br> <br>|_ession r_<br>fbankin<br>|_esults_<br>griskwi<br>|th the pr<br>|econditi<br>|onsford<br>|ifferent<br>|flavors o <br>|f market<br>|discipli<br>|ne<br>||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Equation:<br>Dependent var.|<br>1.1<br> <br>Bank|<br>risk Z|1.2<br>Bank|<br>risk Z|1.3<br>Bank|risk Z|1.4<br>Bank|risk Z|1.5<br>Bank|risk Z|1.6<br>Bank|risk Z|1.7<br>Bank|<br> risk Z|
|Explanatory var.|Coeff.|t-Stat|Coeff.|t-Stat|Coeff.|t-Stat|Coeff.|t-Stat|Coeff.|t-Stat|Coeff.|t-Stat|Coeff.|t-Stat|
|Constant|-1.77|1.3|2.63|8.9***|1.70|3.3***|2.35|3.4***|1.04|0.6|6.02|2.5**|3.84|8.5***|
|Private monitoring index|0.712|3.4***|||||||||||||
|No deposit insurance|||1.26|2.1**|||||||||||
|Listed % of pvt banks|||||2.35|2.6**|||||||||
|Number banks rated|||||||0.115|1.2|||||||
|Bank accounts|||||||||0.680|1.1|||||
|Auditing|||||||||||-3.12|-1.3|||
|Populationsize (log)|||||||||||||-0.374|2.4**|
|R-squared / NOBS|0.125|85|0.052|85|0.082|76|0.029|48|0.015|49|0.020|48|0.066|85|
|Adjusted R-squared|0.114||0.040||0.070||0.008||0.003||0.008||0.054||
|S.E. of regr./DW|2.27|1.95|2.36|1.81|2.38|1.72|2.57|1.23|2.42|1.83|2.40|1.81|2.34|1.64|
|Loglikel./Method|-189.1|LS|-192.6|LS|-172.8|LS|-112.3|LS|-192.3|LS|-194.0|LS|-191.9|LS|

|(ii)Interactionof indexo <br>|fprivate<br> <br>|marketd<br>|iscipline<br>|withper<br>|capitain<br>|come an<br>|d owners<br>|hip struct<br>|ureinaff<br>|ecting b<br>|ankingri<br>|sk<br>|
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Equation:<br>Dependent var.|<br>2.<br> <br>Bank|<br>risk Z|2.2<br>Bank|risk Z|2.3<br>Bank|risk Z|2.<br>Ban|k risk Z|2.5<br>Bank|<br>risk Z|2.<br>Ban|6<br>k risk Z|
|Explanatory var.|Coeff.|t-Stat|Coeff.|t-Stat|Coeff.|t-Stat|Coeff.|t-Stat|Coeff.|t-Stat|Coeff.|t-Stat|
|Constant|-1.77|1.3|1.64|4.2***|-0.543|0.4|1.613|4.2***|2.12|0.8|1.03|2.0*|
|Private Monitoring Index|0.712|3.4***|||0.359|1.6|||-0.058|0.1|||
|GNP per cap (x 100)|||0.817|3.5***|0.708|3.0***|||-1.154|0.7|0.652|2.4**|
|PvtMon x GNP p.c.|||||||0.124|4.0***|0.281|1.2|||
|PvtMon x Privatebanks|||||||||||0.243|2.0*|
|R-squared / NOBS|0.125|85|0.138|80|0.167|80|0.169|80|0.181|80|0.168|72|
|Adjusted R-squared|0.114||0.127||0.141||0.159||0.149||0.144||
|S.E. of regr./DW|2.27|1.95|2.17|1.46|2.19|1.45|2.14|1.44|2.15|1.44|2.22|1.38|
|Loglikel./Method|-189.1|LS|174.7|LS|-168.1|LS|-173.3|LS|-172.7|LS|-158.1||

Note: The dependent variable bank risk is measured by De Nicoló’s _Z_ , which is the average for banks in each country of each bank’s return on assets plus accounting capital all divided by the standard deviation of returns (cf. De Nicoló et al, 2003). Data kindly provided by Gianni de Nicoló.

Except where mentioned, the explanatory variables are zero-one dummies based on the second (2003) wave of the World Bank’s Regulation and Supervision Survey, and employing essentially the same definitions as proposed by Barth, Caprio and Levine (2001). Private Monitoring Index is the composite private monitoring index discussed in the text. “No deposit insurance” is coded “0” if there is an explicit insurance system and that depositors were wholly compensated (to the extent of legal protection) the last time a bank failed; coded “1” otherwise. “Listed % of pvt banks” is an approximation to the share of the privatelyowned part of the banking system consisting of banks with a stock market listing. It is a composite indicator based on data from three sources: it divides the aggregate assets of listed banks and bank holding companies (source Bankscope) by the percentage of total banking assets (source IFS), and expresses the result as a percentage of the share of non-government and non-stateowned banks in total banking assets from the Regulation Survey. “Number banks rated” is the number among the largest ten banks which is rated by an international rating agency. “Bank accounts” ranges from 0 to 3 depending on whether interest accrued but unpaid is excluded from bank earnings, whether consolidation of group accounts is required, and whether bank directors are legally liable for misleading information. “Auditing” means external audit by a certified auditor is compulsory. Private Banks is the percentage share of banking assets in banks that are not owned by government or by foreign banking groups. GNP per cap is Gross National Product per capita in Purchasing Power Parity (PPP) terms, hundreds of US dollars; population size is in millions; both 2001, source: World Development Indicators. Two cross product terms with the Private Monitoring Index (PvtMon) are also employed.

***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

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