Effect of Human Capital Efficiency on Bank Risk-Taking Behavior and Capital Regulation: Empirical Evidence from a Developing Country

Abstract

Adopting a new dimension of efficiency named human capital efficiency this study investigates the effect of efficiency on bank risk-taking and capital regulation. Applying production function of stochastic frontier analysis (SFA), we assess the human capital efficiency and examine the effect and reverse effect on risk and regulatory capital of commercial banks of a sample developing country of Asia over the period of 2000-2014. Our empirical results of the generalized method of moments (GMM) estimator identify the significant positive relationship between risk-taking and human capital efficiency of commercial banks. But no significant association found between capital and human capital efficiency. Again we observe the significant impact of risk and capital in the determination of the human capital efficiency of banks of the sample country.