Bank charter value and market discipline: evidence from emerging markets

Purpose This study aims to investigate the interrelationships between charter value and market discipline in five Southeast Asian countries (ASEAN-5). Design/methodology/approach This research uses a simultaneous equations model with a three-stage least squares estimator for a sample of 79 listed banks from 2006 to 2019. Findings The findings show a negative two-way relationship between charter value and market discipline. More specifically, charter value can reduce market discipline. Meanwhile, a negative relationship between market discipline and charter value reemphasizes the significance of market discipline in the banking system to enhance bank charter value. Similar results still hold when using several robustness checks (e.g. subsamples, considering the global financial crisis, governance indicators and market structure). Originality/value To the best of the authors’ knowledge, this study is the first attempt to investigate the bidirectional relationship between bank risk and charter value in ASEAN-5. Therefore, this study would provide significant recommendations for policymakers and practitioners.