Investigating the relationship between banks' risk-taking, capital adequacy and ownership composition

In this study, the general purpose is to investigate the relationship between banks' risk-taking, capital adequacy and ownership composition. The risk level of CEOs was assessed using a standard questionnaire designed based on the Likert scale. Corporate financial performance is also measured using indicators of total return on assets, return on equity, sales growth and net profit growth. The willingness of senior managers to take risks and the attitude to risk as a special personality trait determines their risk-taking or elusive behavior when making decisions; in such a situation, in order to protect the interests of depositors, criteria such as capital adequacy ratio are included in the law. The present study investigates the effect of capital adequacy on the risk-taking of banks listed on the Tehran Stock Exchange in the period 1392-1397 and based on data from 13 private banks operating in the country. For this purpose, two risk indicators including Z-score index and Merton DD index have been used. The results obtained from the estimation of the regression model using the panel data method indicate that there is a positive and significant relationship between the size and risk of banks based on the Merton DD index; the results also show that there is a positive and significant relationship between capital adequacy and banks' risk-taking based on the Z-score index.