Dr. Atif Saeed Chaudry, Assistant Professor, Suleman Dawood School of Business (SDSB) and co-author Dr. Saad Azmat’s, Associate Professor SDSB, research paper titled, State Contingent and Conventional Banking: The Optimal Banking Choice Model has been accepted for publication in Economic Modelling, an “A” rated journal by ABDC.
This achievement stands as a testament to the academic rigour at SDSB as well as the fact that its faculty is a rich conglomerate of exceptional group of educators dedicated to research.
The paper itself compares and contrasts the optimality of debt based banking (conventional banking) and state contingent banking (one in which the bank has a share in returns from the project it has financed). The paper shows that the advantage that each of these banking types holds over the other might not be universal; rather it may be an outcome of the informational and institutional environment in which they operate.
“In our model, banks optimize both the riskiness of the project and moral hazard concerns to identify the most profitable banking model. We find that state contingent banking is more profitable where projects are riskier, and debt based conventional banking is adopted for relatively lower risk projects. Our model also suggests that state contingent banking would be the optimal choice in cases where there exist greater moral hazard concerns. We explore the empirical implications of our model and find that state contingent banking would be more suitable for small firms, emerging markets, community and Islamic banking,” commented Dr. Atif Saeed Chaudry on the accomplishment.
“This paper was a culmination of our research efforts started within SDSB. For this, I would like to thank Dr. Jawad Syed, Dean SDSB and the research team for providing an excellent research culture within the School. I would also like to thank FIF-2014 for granting funds to be used in the project,” added Dr. Saeed.
