Interaction between Franchise Value and the Risk-taking Behaviors of Commercial Banks

This paper is mainly about the interaction of the franchise value and the risk-taking behaviors of commercial banks. We observe the trend of franchise value of selected banks and develop an empirical model to investigate the relationship by using the quarterly data from 2005 to 2009. Negative correlation between franchise value and the risk levels of banks is proved to exist. We suggest that the banks should maintain their franchise value for credibility and the interplay between franchise value and risk-taking behaviors ought to be strengthened to avoid excessive risk taking.