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Organizational Structure and Performance in European Banks: A Reassessment

Giovanni Ferri

Panu Kalmi

Eeva Kerola

Advances in the Economic Analysis of Participatory & Labor-Managed Firms

ISBN: 978-1-78560-379-2, eISBN: 978-1-78560-378-5

Publication date: 15 December 2015

Abstract

This paper studies the impact of ownership structure on performance in European banking both prior and during the recent crisis. We use a panel of European banks during the period 1996–2011 and utilize random effects estimations in order to identify differences in bank performance (profitability, loan quality, and cost efficiency) due to differences in ownership structure. Both stakeholder and shareholder banks have distinct advantages, shareholder banks showing better profitability before the crisis but stakeholder banks having higher loan quality before and during the crisis. Differences in profitability and loan quality between stakeholder and shareholder banks before the crisis are especially pronounced in countries that experienced a banking crisis after 2007. There is strong a heterogeneity in performance between different stakeholder ownership groups. With the exception of private savings banks, profitability and loan quality of stakeholder banks has improved relative to that of general shareholder banks during the crisis years. The paper contributes to the previous literature by comparing pre-crisis and crisis performance and includes more refined ownership classifications. The results indicate that the survival of the stakeholder model is due to its competitive advantages. Our findings provide support for those arguing that the diversity of organizational structures is worth preserving. Ownership pluralism should become a policy objective in the banking industry.

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Acknowledgements

Acknowledgments

We thank the participants in the EURICSE conference on financial cooperatives held in Trento, June 2010, IAFEP conference in Paris, July 2010, University of Victoria departmental seminar, September 2010, Canadian Economic Association meeting in Ottawa, June 2011, International Economic Association conference in Beijing, July 2011, IFABS Conference Valencia, June 2012, Finnish Economic Association Meeting, February 2014, and Antti Kauhanen, Philippe Bergevin, Wim Fonteyne, Mark Klinedinst, Mervi Toivanen, and an anonymous reviewer for constructive comments. We also thank the Academy of Finland, OP-Pohjola Research Foundation and Yrjö Jahnsson Foundation for financial support. The views expressed in this paper represent those of the authors solely.

Citation

Ferri, G., Kalmi, P. and Kerola, E. (2015), "Organizational Structure and Performance in European Banks: A Reassessment", Advances in the Economic Analysis of Participatory & Labor-Managed Firms (Advances in the Economic Analysis of Participatory & Labor-Managed Firms, Vol. 16), Emerald Group Publishing Limited, Leeds, pp. 109-141. https://doi.org/10.1108/S0885-333920150000016011

Publisher

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Emerald Group Publishing Limited