Publication: Banks' ownership structure, risk and performance
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2010-05-05
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Abstract
This paper studies empirically the effect of ownership concentration on the risk and
performance of commercial banks, controlling for shareholders protection laws, bank
regulations, and other country and bank specific traits. The sample used comprises 795 banks
of 47 countries, in the period from 1997 to 2007. Our main finding is the existence of a cubic
relationship between ownership concentration and bank performance. Such evidence is
supportive of theoretical hypotheses of effective monitoring at low levels of ownership
concentration, expropriation or losses connected to managerial discretion at moderate
ownership concentration, and high costs of expropriation at high levels of ownership
concentration. We also find that ownership concentration is more important to increase the
performance of banks with low concentrated ownership structures, when legal protection of
shareholders is low, and that capital regulations stringency is effective in simultaneously
reducing risk and improving performance of banks. Regarding bank risk, we find a U-shape
relationship between ownership concentration and earnings volatility, supporting that
shareholder’s incentive to take risk prevails when her equity stake is above a threshold.
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Keywords
Banks, Ownership structure, Risk, Corporate governance, Regulation
Bibliographic citation
SSRN working papers series, May 5 2010