El “espacio” como noción dialéctica en los estudios socioespaciales

Prior studies on the empirical analysis of market discipline imposed by market participants have commonly employed static panel data, with an extensive use of fixed or random effect panel models. Martinez-Peria and Schmukler (2001), Ghosh and Das (2003), Nier and Baumann (2006), for example, used static panel data to investigate discipline by depositors while Flannery and Sorescu (1996), Mendonça and Villela Loures (2009), Deyoung et al. (2001), Menz (2010), and Hwang and Min (2013) used this procedure to measure the sensitivity of bond holders on bank fundamentals.

Recent studies, however, suggest the employment of the generalized method of moments (GMM) estimator developed for dynamic models of panel data by Arellano and Bover (1995). This approach has been adopted by studies, such as those of Cubillas et al. (2012), Wu and Bowe (2012), Hadad et al. (2011), and Karas et al. (2010). The dynamic relationships are characterized by the presence of a lagged dependent variable among the regressors (Baltagi, 2008). The GMM has several inherent advantages over panel models because this methodology is specifically designed to address three relevant econometric issues: (1) the first difference specification of the GMM models potentially reduces any inconsistency in the estimates arising from unobservable heterogeneity (or unobservable bank-specific effects) across banking institutions; (2) the autoregressive process in the data regarding the behaviour of the dependent variables (i.e. the growth rate of deposits is likely to exhibit some degree of persistency, resulting in autocorrelation. This can be accommodated through the inclusion of the lagged dependent variable on the right-hand side of the estimated equation); and (3) the likely endogeneity of the explanatory variables. The panel estimator controls for this potential endogeneity by using instruments based on lagged values of the explanatory variables (Martinez-Peria & Schmukler, 2001). Taken together, the GMM procedures are expected to yield more consistent estimators based on the ability to control for potential endogeneity, unobserved heterogeneity, and persistence in the dependent variable. Based on the arguments, to test the hypotheses, this study employs the GMM estimator.

3.6 Chapter Summary

The purpose of the present study is to investigate the existence of market discipline in the Indonesian banking sector and how the market discipline mechanism has been affected by the provision of the FSN. To achieve this objective, this chapter has outlined the main research

113 objectives developed to critically evaluate the presence of market discipline imposed by depositors, debt holders, and equity holders. Furthermore, the proposed conceptual framework is divided into three main parts: bank information and disclosure; market participants; and discipline mechanisms. The presence of market discipline is indicated by the capability of market participants to make reasonable assessments based on available information to exercise discipline on banks.

The discipline by despositors is measured by the relationship between deposit growth rate and bank fundamentals. The hypotheses developed to address the research objectives relating to the discipline imposed by depositors are summarized as follows:

H1a : Total deposit growth has a positive relationship with bank fundamentals H1b : Time deposit has a positive relationship with bank fundamentals

H1c : Uninsured deposit has a positive relationship with bank fundamentals

H1d : The correlation between deposit and bank fundamentals for large banks is not equal to that of small banks

H1e : The correlation between deposit and bank fundamentals for listed banks is not equal to that of unlisted banks

H1f : The correlation between deposit and bank fundamentals for foreign banks is not equal to that of domestic banks

The disciplinary action by bond holders measured by the relationship between bond yield and bank fundamentals. The hypotheses developed to address the research objectives relating to the discipline imposed by bond holders are summarized as follows::

H2a : Bond yield spread has a negative relationship with bank fundamentals

H2b : The correlation between bond yield spread and bank fundamentals for subordinated bonds is not equal to that of senior bonds

H2c : The correlation between bond yield spread and bank fundamentals for larger banks is not equal to that of smaller banks

H2d : The correlation between bond yield spread and bank fundamentals for state banks is not equal to that of private banks

114 The discipline imposed by equity holders is measured by the relationship between equity return and bank fundamentals. The hypotheses developed to address the research objectives relating to the discipline imposed by equity holders are summarized as follows::

H3a : Equity returns have a positive relationship with bank fundamentals

H3b : The correlation between equity return growth and bank fundamentals for large banks is different to that of small banks

H3c : The correlation between equity returns and bank fundamentals for state banks is different to that of private banks

Regression models developed to evaluate the discipline imposed by depositors, bond holders, and equity holders consist of bank individual risk variables and market risk variables. Bank individual risks are measured through the CAMEL ratios derived from published quarterly financial reports. In addition, dummy variables are included in the models in order to identify the effect of bank size, ownership structures, and regulatory changes on market behaviour. The GMM estimation procedure, which is a dynamic panel data model, is chosen to analyze empirically the sensitivity of market participants to bank risks. This procedure has several advantages compared to other methods and is suitable to test the hypotheses presented in this study.

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