Risk-Oriented Efficiency Assessment within the Level of Capitalization for Financial Institutions: Evidence from Turkish Securities Firms

Securities firms are the leading institutions that facilitate the flow of funds by performing key services both in primary and secondary markets. The assessment of the efficiency of these firms has become a contemporary major issue due to the increasingly intense competition, globalization, and inno...

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Bibliographic Details
Published in:International journal of financial studies 2022-12, Vol.10 (4), p.110
Main Authors: Cevikcan, Gokben, Tas, Oktay
Format: Article
Language:English
Subjects:
Banking industry
Banks
Borrowing
capital
Capital market
Capital markets
Capital stock
Commercial banks
Efficiency
Financial institutions
Financial services
Financial services industry
Globalization
Investment banking
Portfolio management
risk
securities firms
Securities industry
three-stage least-squares method
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Summary:Securities firms are the leading institutions that facilitate the flow of funds by performing key services both in primary and secondary markets. The assessment of the efficiency of these firms has become a contemporary major issue due to the increasingly intense competition, globalization, and innovation in capital markets. As part of the nature of the business environment for such firms, risk-taking behaviors play a key role in their efficiency. In addition, the level of capitalization has become a more critical tool to counterbalance risk and efficiency. Therefore, we aimed to assess the relationship between efficiency, risk, and the level of capitalization in a sample of Turkish securities by covering the detailed data of securities firms between 2004 Q1 and 2021 Q4. After employing a three-stage least-squares method in a panel-data framework, the empirical findings showed that there was a positive and significant relationship between the risk incentive and efficiency in the brokerage industry, which implied that firms can improve their efficiency through a more diversified portfolio. We further report that there was also a positive and significant relationship between securities firms’ risk incentives and capital that could be explained by the higher risky-asset ratio needed for larger amounts of capital to compensate for losses. These results have potentially important implications for the brokerage industry’s prudent supervision and underlined the importance of attaining long-term efficiency gains to support the development of capital markets.
ISSN:2227-7072
2227-7072
DOI:10.3390/ijfs10040110