Ownership structure and bank performance: An emerging market perspective

Mamatzakis, Emmanuel and Zhang, Xiaoxiang and Wang, Chaoke (2017): Ownership structure and bank performance: An emerging market perspective.

Abstract

This study investigates whether ownership type does matter for bank performance in an emerging market. By tracing the identity of top owners, I group large shareholder of China’s commercial banks into government, state owned enterprises (SOEs), domestic private investors and foreign investors. These distinct types of shareholders have multiple motivations and incentives, in turn, this will affect how they perform their control rights and monitor over the invested banks. The main findings regarding the impact of ownership structure on bank performance suggest that banks with high state shareholding tend to have poorer performance and low profitability, consistent with much of the literature. In addition, banks with higher domestic privately shareholders are generally operated more profitably. Furthermore, higher foreign ownership may negatively affect bank performance. Moreover, ownership type diversity is positively associated with bank performance, and banks with concentrated ownership are worse performing. My findings are robustness under the different measures of bank performance.

• Item Type: MPRA Paper
• Language: English
• Keywords: Banks, Ownership structure, Corporate governance
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill

References

Altunbas, Y., Evans, L., Molyneux, P., 2001. Bank ownership and efficiency. Journal of Money, Credit and Banking 33, 926-954.

Bailey, W., Huang, W., Yang, Z., 2012. Bank loans with Chinese characteristics: some evidence on inside debt in a state-controlled banking system. Journal of Financial and Quantitative Analysis 46, 1795-1830.

Barth, J. R., Caprio Jr, G., Levine, R., 2013. Bank Regulation and Supervision in 180 Countries from 1999 to 2011. Journal of Financial Economic Policy 5, 111-219.

Battaglia, F., Gallo, A., 2017. Strong boards, ownership concentration and EU banks’ systemic risk-taking: Evidence from the financial crisis. Journal of International Financial Markets, Institutions and Money 46, 128–146.

Beltratti, A., Stulz, R.M., 2012. The credit crisis around the globe: Why did some banks perform better? Journal of Financial Economics 105, 1–17.

Berger, A. N., Bouwman, C. H., 2013. How does capital affect bank performance during financial crises? Journal of Financial Economics 109, 146-176.

Berger, A. N., Clarke, G. R., Cull, R., Klapper, L., Udell, G. F., 2005. Corporate governance and bank performance: A joint analysis of the static, selection, and dynamic effects of domestic, foreign, and state ownership. Journal of Banking and Finance 29, 2179-2221.

Berger, A. N., Hasan, I., Zhou, M., 2009a. Bank ownership and efficiency in China: What will happen in the world's largest nation? Journal of Banking and Finance 33, 113-130.

Berger, A. N., Klapper, L. F., Turk-Ariss, R., 2009b. Bank competition and financial stability. Journal of Financial Services Research 35, 99-118.

Bertay, A. C., Demirgüç-Kunt, A., Huizinga, H., 2013. Do we need big banks? Evidence on performance, strategy and market discipline. Journal of Financial Intermediation 22, 532-558.

Caprio, G., Laeven, L., Levine, R., 2007. Governance and bank valuation. Journal of Financial Intermediation 16, 584-617.

Carney, R. W., Child, T. B., 2013. Changes to the ownership and control of East Asian corporations between 1996 and 2008: The primacy of politics. Journal of Financial Economics 107, 494-513.

Chen, V. Z., Li, J., Shapiro, D. M., Zhang, X., 2014. Ownership structure and innovation: An emerging market perspective. Asia Pacific Journal of Management 31, 1-24.

Chen, Y.-S., Chen, Y., Lin, C.-Y., Sharma, Z., 2016. Is there a bright side to government banks? Evidence from the global financial crisis. Journal of Financial Stability 26, 128–143.

Claessens, S., Djankov, S., Lang, L. H., 2000. The separation of ownership and control in East Asian corporations. Journal of Financial Economics 58, 81-112.

Cornett, M. M., Guo, L., Khaksari, S., Tehranian, H., 2010. The impact of state ownership on performance differences in privately-owned versus state-owned banks: An international comparison. Journal of Financial Intermediation 19, 74-94.

De Andres, P., Vallelado, E., 2008. Corporate governance in banking: The role of the board of directors. Journal of banking and finance 32, 2570-2580.

DeYoung, R., Peng, E. Y., Yan, M., 2013. Executive compensation and business policy choices at US commercial banks. Journal of Financial and Quantitative Analysis 48, 165-196.

DeYoung, R., Spong, K., Sullivan, R. J., 2001. Who's minding the store? Motivating and monitoring hired managers at small, closely held commercial banks. Journal of Banking and Finance 25, 1209-1243.

Dong, Y., Meng, C., Firth, M., Hou, W., 2014. Ownership structure and risk-taking: Comparative evidence from private and state-controlled banks in China. International Review of Financial Analysis 36, 120-130.

Elyasiani, E., Zhang, L., 2015. Bank holding company performance, risk, and busy board of directors. Journal of Banking and Finance 60, 239 – 251.

Faccio, M., Masulis, R. W., McConnell, J. J., 2006. Political Connections and Corporate Bailouts. Journal of Finance 61, 2597-2635.

Fama, E. F., Jensen, M. C., 1983. Separation of ownership and control. Journal of Law and Economics 301-325.

Fu, X. M., Heffernan, S., 2009. The effects of reform on China’s bank structure and performance. Journal of Banking and Finance 33, 39-52.

Garcia-Herrero, A., Gavilá, S., Santabárbara, D., 2009. What explains the low profitability of Chinese banks? Journal of Banking and Finance 33, 2080-2092.

Gillan, S., Starks, L. T., 2003. Corporate governance, corporate ownership, and the role of institutional investors: A global perspective. Journal of Applied Finance 13, 4-22.

Heugens, P. P., Van Essen, M., van Oosterhout, J. H., 2009. Meta-analyzing ownership concentration and firm performance in Asia: Towards a more fine-grained understanding. Asia Pacific Journal of Management 26, 481-51.

Huang, W., Zhu, T., 2015. Foreign institutional investors and corporate governance in emerging markets: evidence of a split-share structure reform in China. Journal of Corporate Finance 32, 312-326.

Iannotta, G., Nocera, G., Sironi, A., 2007. Ownership structure, risk and performance in the European banking industry. Journal of Banking & Finance 31, 2127-2149.

Iannotta, G., Nocera, G., Sironi, A., 2013. The impact of government ownership on bank risk. Journal of Financial Intermediation 22, 152-176.

Jensen, M. C., Meckling, W. H., 1976. Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics 3, 305-360.

Jiang, C., Yao, S., Feng, G., 2013. Bank ownership, privatization, and performance: Evidence from a transition country. Journal of Banking and Finance 37, 3364-3372.

Lee, C.-C., Hsieh, M.-F., 2014. Bank reforms, foreign ownership, and financial stability. Journal of International Money and Finance 40, 204-224.

Lensink, R., Meesters, A., Naaborg, I., 2008. Bank efficiency and foreign ownership: Do good institutions matter? Journal of Banking and Finance 32, 834-844.

Liang, Q., Xu, P., Jiraporn, P., 2013. Board characteristics and Chinese bank performance. Journal of Banking and Finance 37, 2953-2968.

Lin, J. Y., Sun, X., Wu, H. X., 2015. Banking structure and industrial growth: Evidence from China. Journal of Banking and Finance 58, 131–143.

Lin, X., Zhang, Y., 2009. Bank ownership reform and bank performance in China. Journal of Banking and Finance 33, 20-29.

Lu, Z., Zhu, J., Zhang, W., 2012. Bank discrimination, holding bank ownership, and economic consequences: Evidence from China. Journal of Banking and Finance 36, 341-354.

Micco, A., Panizza, U., Yanez, M., 2007. Bank ownership and performance. Does politics matter? Journal of Banking and Finance 31, 219-24.

Saghi-Zedek, N., 2016. Product diversification and bank performance: Does ownership structure matter? Journal of Banking and Finance 71, 154–167.

Shleifer, A., Vishny, R. W., 1997. A survey of corporate governance. Journal of Finance 52, 737-783.

Stan, C. V., Peng, M. W., Bruton, G. D., 2014. Slack and the performance of state-owned enterprises. Asia Pacific Journal of Management 31, 473-495.

Williams, J., Nguyen, N., 2005. Financial liberalisation, crisis, and restructuring: A comparative study of bank performance and bank governance in South East Asia. Journal of Banking and Finance 29, 2119-2154.

Zhang, D., Cai, J., Dickinson, D. G., Kutan, A. M., 2016. Non-performing loans, moral hazard and regulation of the Chinese commercial banking system. Journal of Banking and Finance 63, 48–60.

Zhang, J., Jiang, C., Qu, B., Wang, P., 2013. Market concentration, risk-taking, and bank performance: Evidence from emerging economies. International Review of Financial Analysis 30, 149–157.

Zhu, W., Yang, J., 2016. State ownership, cross-border acquisition, and risk-taking: Evidence from China’s banking industry. Journal of Banking and Finance 71, 133–153.