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Deposit Insurance, Corporate Governance and Discretionary Behavior: Evidence from Thai Financial Institutions

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  • Anuchitworawong, Chaiyasit

Abstract

Claiming that the implicit cost of deposit insurance is an alternative proxy for risk-taking behavior, we examine the effects of incentive-inducing ownership and entrenchment of the largest shareholders and discretionary behavior of the management on the risk of Thai financial institutions. Our empirical results suggest that, during 1994-1996, the largest shareholders engage in low risk-taking activities when they hold large cash flow rights and have low deviation of cash flow from control rights. However, the risk is higher when the largest family shareholder enters the board and when Chairman-CEO can manipulate loan loss provisions. After the financial crisis, earnings management through discretion on loan loss provisions reduces risk. Overall, this study suggests that the problems underlying the implicit guarantee scheme are different between banks and finance companies, and between types of governance structure.

Suggested Citation

  • Anuchitworawong, Chaiyasit, 2004. "Deposit Insurance, Corporate Governance and Discretionary Behavior: Evidence from Thai Financial Institutions," CEI Working Paper Series 2004-15, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hitcei:2004-15
    Note: July 2004
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/13907/wp2004-15a.pdf
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    References listed on IDEAS

    as
    1. Demirguc-Kunt, Asl1 & Huizinga, Harry, 1999. "Market discipline and financial safety net design," Policy Research Working Paper Series 2183, The World Bank.
    2. Beaver, William H. & Engel, Ellen E., 1996. "Discretionary behavior with respect to allowances for loan losses and the behavior of security prices," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 177-206, October.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Pathan, Shams & Skully, Michael & Wickramanayake, J., 2008. "Reforms in Thai bank governance: The aftermath of the Asian financial crisis," International Review of Financial Analysis, Elsevier, vol. 17(2), pages 345-362.

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    More about this item

    Keywords

    Implicit guarantee; Risk; Ownership Structure; Managerial Discretion; Thai Financial Institutions;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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