How does Basel II and III influence Shareholders wealth Maximization
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Credit Risk and Shareholder Value: An evidence from the UK Banking system The banking business is exposed to a number of risks. Credit risk is the most important one among these risks because of the large scale credit operations of the bank. The bank may use various techniques for the management of credit risk. These risk management practices should be aligned with the basic principle of financial management i.e. shareholders’ wealth maximization. This study is evaluating the relationship of credit risk with shareholders’ wealth maximization. The study is focused on the banking system in UK. The researcher has focused on three dimensions of credit risk i.e. credit risk exposure, credit risk measurement and credit risk management. The impact of these dimensions has been evaluated on two dimensions of shareholders’ wealth i.e. ROE and ROS. This study has collected both secondary and primary data for the analysis. The secondary data has been collected from the annual reports of 7 selected banks for the past 10 years. The primary data has been collected through semi-structured interviews. The secondary data has been analysed using the techniques of panel data analysis. The results of the panel data analysis reveals that credit risk exposure is playing an important role in determining shareholders’ value. These results also revealed the risky attitude of the investor trading in the market as they prefer the banks with higher credit risk exposure. The results of the primary data analysis reveal that employees in the banking system are not aware of the alignment of various practices with the objectives of shareholders’ wealth maximization. They are of the view that it is responsibility of board of directors to review the alignment of policies with this basic objective. The study highlights that employees are required to be educated in this regard. Moreover, the study also emphasize on review the credit risk exposure and CAR i.e. being used for the management of credit risk. The bank management should determine the optimal level of CAR. The study has been performed on a limited sample size. The future researchers may take a large sample size and a cross country analysis can also be performed
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