<abstract xmlns="http://www.w3.org/1999/xhtml"><p>According to the agency theory, debt brings discipline to management and therefore, one way of reducing agency costs is by increasing the level of indebtedness. Even though there are a number of specificities of banks as corporations, this agency theory postulate should still be valid. This research is motivated by the need to understand microeconomics of banking better, which could be especially rewarding in CEE countries where the issues of credit risk, bank capital and corporate governance are specific. Accordingly, by testing the disciplinary role of debt in Croatian banks, we contribute to the still scarce literature on bank governance in Croatia. We operationalise the research by first generating an efficiency measure, which we believe adequately represents management efforts and ability to maximize the value of owners’ investment. In the next step, we explore the relation between banks' efficiency and leverage. Our results do not indicate that debt generally creates a discipline mechanism for bank managers in Croatia.</p></abstract>

According to the agency theory, debt brings discipline to management and therefore, one way of reducing agency costs is by increasing the level of indebtedness. Even though there are a number of specificities of banks as corporations, this agency theory postulate should still be valid. This research is motivated by the need to understand microeconomics of banking better, which could be especially rewarding in CEE countries where the issues of credit risk, bank capital and corporate governance are specific. Accordingly, by testing the disciplinary role of debt in Croatian banks, we contribute to the still scarce literature on bank governance in Croatia. We operationalise the research by first generating an efficiency measure, which we believe adequately represents management efforts and ability to maximize the value of owners’ investment. In the next step, we explore the relation between banks' efficiency and leverage. Our results do not indicate that debt generally creates a discipline mechanism for bank managers in Croatia.

Testing out the disciplinary role of debt in Croatian banks

Croatian Review of Economic, Business and Social Statistics

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

{"article-title":"Testing out the disciplinary role of debt in Croatian banks"}

According to the agency theory, debt brings discipline to management and therefore, one way of reducing agency costs is by increasing the level of...

Testing out the disciplinary role of debt in Croatian banks

Publié en ligne: 11 juil. 2017

Pages: 45 - 62

Reçu: 05 avr. 2017

Accepté: 26 juin 2017

DOI: https://doi.org/10.1515/crebss-2017-0004

Mots clés
Agency theory, banking sector, Croatia, managerial efficiency

© 2017 Mario Bambulović et al., published by De Gruyter Open

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Testing out the disciplinary role of debt in Croatian banks

Publié en ligne: 11 juil. 2017

Pages: 45 - 62

Reçu: 05 avr. 2017

Accepté: 26 juin 2017

DOI: https://doi.org/10.1515/crebss-2017-0004

Mots clésAgency theory, banking sector, Croatia, managerial efficiency

© 2017 Mario Bambulović et al., published by De Gruyter Open

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Mots clés
Agency theory, banking sector, Croatia, managerial efficiency