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Bank's risk-taking and ownership structure - evidence for economics in transition stage

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  • Shuching Chou
  • Fengyi Lin

Abstract

Conventional studies assume that inside management plays a major role in corporate governance and argue that foreign institutional investors may lack incentives to monitor invested firms due to their short-term profit orientation. By utilizing 650 observations of Taiwan banks, this study examines the effects of specific types of ownership on the risk-taking behaviours of banks under differential ownership structures. In light of the increasing foreign institution ownership during privatization, this article further constructs relative governance strength variables to observe how inside management and foreign institutions interact to affect these banks' risk-taking. The results show that banks with higher inside management ownership and higher government ownership have higher overdue loan and lower capital adequacy ratios. Banks with higher foreign institution ownership and stronger relative governance strength are associated with lower overdue loans and higher regulatory capital. In general, the results are consistent regardless of the choice of ownership structure or relative governance strength of foreign institutions as independent variable. These findings contribute to add evidence for risk-taking behaviour manifested by banks in the emerging market, where feasible monitoring mechanisms still need to be explored.

Suggested Citation

  • Shuching Chou & Fengyi Lin, 2011. "Bank's risk-taking and ownership structure - evidence for economics in transition stage," Applied Economics, Taylor & Francis Journals, vol. 43(12), pages 1551-1564.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:12:p:1551-1564
    DOI: 10.1080/00036840903018791
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    References listed on IDEAS

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    1. Ebrahim, Alnoor & Herz, Steve, 2007. "Accountability in Complex Organizations: World Bank Responses to Civil Society," Working Paper Series rwp07-060, Harvard University, John F. Kennedy School of Government.
    2. Alnoor Ebrahim & Steve Herz, 2007. "Accountability in Complex Organizations: World Bank Responses to Civil Society," Harvard Business School Working Papers 08-027, Harvard Business School.
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    Cited by:

    1. Muhammad Sajjad Hussain & Muhammad Muhaizam Bin Musa Musa & Abdelnaser Omran Ali, 2018. "The Impact of Private Ownership Structure on Risk Taking by Pakistani Banks: An Empirical Study AbstractThe financial crisis of 2007-09 was converted the focus of researchers and regulators toward ban," Pakistan Journal of Humanities and Social Sciences, International Research Alliance for Sustainable Development (iRASD), vol. 6(3), pages :325-337, September.
    2. Hussein A. Hassan Al-Tamimi & Neila Jellali, 2013. "The Effects of Ownership Structure and Competition on Risk-Taking Behavior: Evidence from UAE Conventional and Islamic Banks," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(2), pages 115-124.
    3. Ashraf, Dawood & Ramady, Mohamed & Albinali, Khalid, 2016. "Financial fragility of banks, ownership structure and income diversification: Empirical evidence from the GCC region," Research in International Business and Finance, Elsevier, vol. 38(C), pages 56-68.
    4. Khoa Dang Duong & Ai Nhan Ngoc Le & Diep Van Nguyen & Hoa Thanh Phan Le, 2023. "Impact of Ownership Structure and Business Diversifications on the Risk-Taking Behaviors of Insurance Companies in Vietnam," SAGE Open, , vol. 13(3), pages 21582440231, August.
    5. Marc Kouzez, 2021. "Foreign ownership and bank performance Evidence from French market," Economics Bulletin, AccessEcon, vol. 41(2), pages 834-847.
    6. Shaban, Mohamed & James, Gregory A., 2018. "The effects of ownership change on bank performance and risk exposure: Evidence from indonesia," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 483-497.
    7. Ali, Abdelrahman Elzahi Saaid, 2016. "Poverty Alleviation through Microfinance in North-East Kenya Province," Working Papers 2016-9, The Islamic Research and Teaching Institute (IRTI).

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