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The Effect of Bank Ownership Concentration on Capital Adequacy, Liquidity, and Capital Stability

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  • Pichaphop Chalermchatvichien
  • Seksak Jumreornvong
  • Pornsit Jiraporn
  • Manohar Singh

Abstract

We explore the effects of ownership concentration on the risk-taking behavior of banks. Our analysis focuses on East Asian countries because these nations have successfully implemented the Basel standards and demonstrate a high degree of regulatory convergence. For the period from 2005 to 2009, we analyzed the relation between ownership concentration and capital adequacy (Basel II) and find that an increase in ownership concentration by one standard deviation results in an improvement in capital adequacy by 7.64 %. Although Basel III does not go into effect until 2013, we retroactively apply the standards for capital stability on our sample. We find that ownership concentration would have been a significant determinant of capital stability. While at lower levels of ownership concentration, an increase in concentrated ownership would have reduced capital stability; at higher ownership levels, greater ownership concentration would have increased capital stability. We also find that concentrated ownership improves banks’ liquidity. Further, the recent financial crisis does not appear to change the fundamental associations among ownership concentration, capital adequacy, and liquidity. Copyright Springer Science+Business Media New York 2014

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  • Pichaphop Chalermchatvichien & Seksak Jumreornvong & Pornsit Jiraporn & Manohar Singh, 2014. "The Effect of Bank Ownership Concentration on Capital Adequacy, Liquidity, and Capital Stability," Journal of Financial Services Research, Springer;Western Finance Association, vol. 45(2), pages 219-240, April.
    • Handle: RePEc:kap:jfsres:v:45:y:2014:i:2:p:219-240
    DOI: 10.1007/s10693-013-0160-8
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    5. Zheng, Changjun & Moudud-Ul-Huq, Syed & Rahman, Mohammad Morshedur & Ashraf, Badar Nadeem, 2017. "Does the ownership structure matter for banks’ capital regulation and risk-taking behavior? Empirical evidence from a developing country," Research in International Business and Finance, Elsevier, vol. 42(C), pages 404-421.
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    More about this item

    Keywords

    Basel III; Bank ownership; Capital adequacy; Capital stability; Financial crisis; G01; G18; G21; G28; G34; G38;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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