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Impact of ownership structure and ownership concentration on credit risk of Chinese commercial banks

Author

Listed:
  • Yang Liu
  • Sanjukta Brahma
  • Agyenim Boateng

Abstract

Purpose - The purpose of this paper is to examine the effects of bank ownership structure and ownership concentration on credit risk. Design/methodology/approach - Using panel data on a sample of 88 Chinese commercial banks, with 826 observations over a period of 2003–2018, this study has applied system generalised method of moments regression to examine the impact of bank ownership structure and ownership concentration on credit risk. This study has used two measures of credit risk, which are non-performing loan ratio (NPLR) and loan loss provision ratio (LLPR). Findings - The results show that ownership type (both government and private ownership) exerts a positive and significant impact on credit risk. Measuring ownership concentration using Herfindahl–Hirchmann Index, the results indicate that concentration of ownership in the hands of government has a negative and significant effect on credit risk, whereas private ownership concentration positively impacts credit risk. Overall, the findings suggest that concentration of ownership in government hands reduces risk; however, private ownership concentration exacerbates credit risks. The results are invariant to both measures of credit risk, before and after the financial crisis. Practical implications - The findings provide useful insight to guide policy decisions in Chinese banks’ lending policies and bank ownership. Originality/value - Using twoex postmeasures of credit risk, NPLR and LLPR, and one ownership concentration measure, HHI, this study deepens our understanding on the effectiveness of Chinese banks’ corporate governance reforms on managing credit risks.

Suggested Citation

  • Yang Liu & Sanjukta Brahma & Agyenim Boateng, 2019. "Impact of ownership structure and ownership concentration on credit risk of Chinese commercial banks," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 16(2), pages 253-272, October.
    • Handle: RePEc:eme:ijmfpp:ijmf-03-2019-0094
    DOI: 10.1108/IJMF-03-2019-0094
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    Citations

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    Cited by:

    1. Othman Hel Al-Dhaimesh, 2020. "Ownership Structure as One of the Corporate Governance Tools and Banking Risks," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 60-69.
    2. Tonmoy Choudhury & Simone Scagnelli & Jaime Yong & Zhaoyong Zhang, 2021. "Non-Traditional Systemic Risk Contagion within the Chinese Banking Industry," Sustainability, MDPI, vol. 13(14), pages 1-16, July.

    More about this item

    Keywords

    Ownership concentration; Ownership structure; Credit risk; Loan loss provision; Herfindahl–Hirchmann Index; Non-performing loan ratio; G32; G34;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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