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Article
Publication date: 25 November 2019

Wenling Lu and Wan-Jiun Paul Chiou

This study aims to examine the intertemporal changes in the institutional ownership of publicly traded bank holding companies (BHCs) in the USA. The role of…

Abstract

Purpose

This study aims to examine the intertemporal changes in the institutional ownership of publicly traded bank holding companies (BHCs) in the USA. The role of owned-subsidiary investing in the portfolio decisions is investigated as compared to unaffiliated banks and non-bank institutional investors.

Design/methodology/approach

The authors apply panel regressions that control bank-fixed and time-fixed effects to study the impact of prudence, liquidity, information advantages and historical returns on each type of the institutional ownership from 1986 to 2014.

Findings

The subsidiary banks tend to invest in more shares of their parent BHCs when they are traded for a short period of time and when they have low-market risk, low turnover, a low capital equity ratio and great reliance on off-balance activities. However, the impact of these determinants of institutional ownership is opposite for unaffiliated banks and non-bank institutions.

Research limitations/implications

This study provides evidence that the criteria used by subsidiary banks to invest in their parent company stock are different than the unaffiliated banks and non-bank institutions, raising concerns about the owned-subsidiary investing activities and banks’ trustees’ duty to work in the best interest of their trust clients.

Originality/value

This paper provides a comprehensive analysis of the level and market value of BHC institutional ownership over the past three decades and the impact of different determinants on the ownership of BHCs by subsidiary banks, unaffiliated banks and non-bank institutional investors.

Details

Journal of Financial Economic Policy, vol. 12 no. 3
Type: Research Article
ISSN: 1757-6385

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Article
Publication date: 14 September 2015

Mona A. ElBannan

– The purpose of this paper is to examine the effect of bank consolidation and foreign ownership on bank risk taking in the Egyptian banking sector.

Abstract

Purpose

The purpose of this paper is to examine the effect of bank consolidation and foreign ownership on bank risk taking in the Egyptian banking sector.

Design/methodology/approach

Following prior studies (e.g. Yeyati and Micco, 2007; Barry et al., 2011), this study uses pooled Ordinary Least Squares regression models under two main analyses to test the relation between concentration and foreign ownership on one hand and bank risk-taking behavior on the other hand, where observations are pooled across banks and years for the 2000-2011 period. The reform plan was launched in 2004 and resulted in various restructuring activities in the banking system. Thus, to control for the effect of implementing the financial sector reform plan on bank insolvency and credit risk, this study includes a reform dummy variable (RFM) for the post-reform period in models testing the association between consolidation, foreign ownership and bank risk. Therefore, this categorical variable identifies whether bank risk is related to the reform activities that have been observed during the post-restructuring period, 2005-2011. Moreover, to accommodate the possibility that effects of bank concentration and foreign ownership on bank risk differ due to the implementation of the reform plan, the author create two interaction terms: one uses the product of the reform dummy variable and concentration measures, while the other uses the product of the reform dummy and foreign ownership variables to capture interactions. These interaction terms and the dummy variable provide ample room to capture the effect of bank concentration and foreign ownership on bank risks during the post-reform period.

Findings

This study provides empirical evidence that bank concentration is associated with low insolvency risk and credit risk as measured by loan loss provisions (LLP) in the post-reform period. These results are consistent with the “concentration-stability” view, suggesting that concentration of the banking sector will enhance stability. Moreover, evidence shows that while a higher presence of foreign banks reduces bank credit risk in the post-reform period, it appears to increase insolvency risk. These results are robust to using alternative measures. These findings imply that regulators in emerging countries should support foreign investments in banks to transfer better managerial skills and systems. However, government-owned banks are found to be more prone to insolvency and credit risks; thus, their ownership should not be encouraged. Finally, policy makers should reinforce bank consolidation, be prudent in determining the capital adequacy ratio (CAR) and monitor intensively less profitable, well-capitalized and small-sized banks.

Practical implications

Consolidation of the banking sector decreases insolvency risk and credit risk, as measured by LLP in the post-reform period. This study proposes that bank supervisors implement prudent polices in determining the bank CAR, and monitor intensively less profitable, well-capitalized and smaller banks, as they have incentives to increase risk. In addition, regulators should encourage foreign investment in the banking sector and facilitate their operations in Egypt.

Social implications

Bank supervisors should intensely monitor banks with high-CARs that exceed mandatory requirements because they may be more likely to engage in more risk-taking activities.

Originality/value

It provides empirical evidence from a country-specific, emerging market perspective, in which restructuring events affect the national economy. Egypt, similar to other emerging countries in Africa, pursues an institutionally based (bank-based) system of corporate governance, where banks are the primary sources of finance for firms. Therefore, restructuring banks and other financial institutions and supervising their operations ensure the soundness and stability of these institutions, which represent the nerve of emerging economies. Because emerging countries tend to share common characteristics and economic conditions, and the reform of their financial systems is significant for economic development, the Egyptian banking reform and restructuring program should be of interest to other emerging countries to capitalize on this experiment. While international studies on these relationships are mostly cross-country or focus on US banks, firm-specific studies are scant. Furthermore, the findings of this study should be of interest to Egyptian regulators, bank supervisors and policy makers studying the implications of bank reforms.

Details

Managerial Finance, vol. 41 no. 9
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 12 February 2018

Carlo Migliardo and Antonio Fabio Forgione

The purpose of this paper is to investigate the impact of ownership structure on bank performance in EU-15 countries. Specifically, it examines to what extent shareholder…

Abstract

Purpose

The purpose of this paper is to investigate the impact of ownership structure on bank performance in EU-15 countries. Specifically, it examines to what extent shareholder type and the degree of shareholder concentration affect the banks’ profitability, risk and technical efficiency.

Design/methodology/approach

This study uses a sample of 1,459 banks operating in EU-15 countries from 2011 to 2015. It constructs a set of continuous variables capturing the ownership nature, the concentration and their interactions, and estimates an instrumental variable random effect (IV-RE) model. In addition, a panel data stochastic frontier analysis is conducted to estimate the time-varying technical efficiency for profitability and costs.

Findings

The empirical analysis shows that bank performance is affected by shareholder type. When regressed against the entrenchment behavior of the controlling owner hypothesis, banks with large-block shareholders are more profitable, less risky and more profit efficient. Further, ownership concentration reverts the negative effect related to the institutional, bank and industry ownership.

Research limitations/implications

The results support the hypothesis that concentrated ownership helps to overcome agency problems. They also confirm that managerial involvement in banks’ capital enhances a bank’s profit and its volatility.

Originality/value

To the best of the authors’ knowledge, this is the first study to consider the ownership nature, the concentration and their interaction using continuous variables, which allows for more precise inferences. The results provide new evidence that bank profitability, cost efficiency and risk are affected by the type of direct shareholders.

Details

Corporate Governance: The International Journal of Business in Society, vol. 18 no. 3
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 13 August 2018

Jinwoo Park, Kengo Shiroshita, Naili Sun and Yun W. Park

The purpose of this paper is to analyze the wealth effect of involuntary delisting and investigate insider opportunism and the role of corporate governance, liquidity and…

Abstract

Purpose

The purpose of this paper is to analyze the wealth effect of involuntary delisting and investigate insider opportunism and the role of corporate governance, liquidity and legal environment in involuntary delisting in Japan’s stock market.

Design/methodology/approach

The authors use a sample of 136 involuntarily delisted firms in Japan’s stock markets between 2002 and 2012. The authors examine ownership changes of inside shareholders prior to delisting and estimate regression models for the wealth effect of involuntary delisting.

Findings

Involuntary delisting is highly disruptive in Japan, and limited liquidity of delisted stocks appears to be an important cause. However, the ownership reduction of inside shareholders before delisting is limited, totaling 2–3 percent. For delisted firms with an insider bank, the decrease in share price leading up to a delisting announcement is much less, while the decrease in share price upon a delisting announcement is far greater.

Originality/value

The study investigates involuntary delisting in regard to the opportunistic behavior of inside shareholders and the role of institutional environment in Japan’s stock market. Insiders, especially insider banks, maintain ownership in a distressful context leading to the forcible delisting of a distressed firm. The authors find some evidence that suggests that the market believes the insider bank will try to prevent the ailing firm’s insolvency. The findings are consistent with the implicit relational contracts that characterize Japanese firms.

Details

Managerial Finance, vol. 44 no. 9
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 17 September 2018

Faizul Haque

This study aims to investigate how ownership structure and bank regulations individually and interactively influence risk-taking behaviour of a bank.

Abstract

Purpose

This study aims to investigate how ownership structure and bank regulations individually and interactively influence risk-taking behaviour of a bank.

Design/methodology/approach

This empirical framework is based on dynamic two-step system generalised method of moments estimation technique to analyse an unbalanced panel data set covering 144 conventional banks from 12 Middle East and North Africa (MENA) countries.

Findings

The estimation results suggest that foreign shareholding has an inverse relationship with bank risk-taking. In addition, official supervisory power is found to have a positive association with bank risk, and this relationship is reinforced for banks with higher ownership concentration. In addition, capital stringency increases bank risk, whereas market discipline has an opposite effect, only in countries with higher activity restrictions. Finally, the interaction between ownership concentration and activity restriction has an inverse association with bank risk-taking.

Research limitations/implications

Overall, the evidence suggests that the Basel II framework and the regulatory reform initiatives in the post-global financial crisis period do not seem to have reduced bank risk-taking in MENA countries.

Originality/value

This study contributes to the literature on the effectiveness of regulatory reform based on the three pillars of the Basel II guidance (capital regulations, market-oriented disclosures and official supervisory power), and offers evidence in support of “political/regulatory capture hypothesis” of bank regulation. The results also provide support for “global advantage hypothesis” of bank ownership.

Details

Corporate Governance: The International Journal of Business in Society, vol. 19 no. 1
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 7 June 2021

Christopher Boachie

The purpose of this paper is to investigate the moderating effect of ownership on the links between corporate governance and financial performance in the context of Ghanaian banks.

Abstract

Purpose

The purpose of this paper is to investigate the moderating effect of ownership on the links between corporate governance and financial performance in the context of Ghanaian banks.

Design/methodology/approach

The current study used a sample of 23 banks and the multiple regression method to analyze a panel dataset of 414 from banks over an 18-year period.

Findings

The findings revealed that audit independence, chief executive officer (CEO) duality, non-executive directors and banks size have a positive impact on performance. The findings also revealed that foreign ownership has an interacting effect between corporate governance and profitability.

Practical implications

The practical implications of the current study demonstrated that good corporate governance creates value and must be invigorated for the interest of all stakeholders. Foreign ownership has an interacting effect between corporate governance and performance. Policymakers should formulate policies for attracting foreign investors.

Originality/value

Interestingly, this study is the first of its kind that exclusively chose ownership structure to interact between corporate governance and bank performance in Ghanaian perspective. Such new insights on this relationship provide useful information to the government, academics, policymakers and other stakeholders. The growing economies of African countries, and the inadequate governance–performance literature in African context, have created a demand to appreciate the governance parameters in these countries and its influence on firm's performance.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 17 May 2021

Annisa Fithria, Mahfud Sholihin, Usman Arief and Arif Anindita

This study aims to analyse the relationship between management ownership and the performance of Islamic microfinance institutions (MFIs) using panel data from Indonesian…

Abstract

Purpose

This study aims to analyse the relationship between management ownership and the performance of Islamic microfinance institutions (MFIs) using panel data from Indonesian Islamic rural banks (Bank Pembiayaan Rakyat Syariah [BPRS]).

Design/methodology/approach

This study uses unbalanced quarterly panel data from BPRS during the period from 2011 to 2016. Performance, as the dependent variable in this study, is analysed based on three sets of measures, namely, profitability, efficiency and the financing risk. Management ownership, as the independent variable in this study, is represented by ownership by the board of directors (BOD), the board of commissioners (BOC) and the sharia supervisory boards (SSB).

Findings

The results show that ownership by the BOD and BOC does not have a significant relationship with profitability and efficiency. However, the BOD ownership has a negative relationship with the financing risk and vice versa for the BOC ownership. Additionally, the study reveals that ownership by the SSB plays a positive and significant role in increasing the profitability and efficiency but does not have a significant impact on the financing risk.

Originality/value

This is one of the first studies to provide empirical results regarding the relationship between management (BOD, BOC and SSB) ownership and the performance of BPRS. The finding reveals that ownership by the SSB is very important to increase the profitability and efficiency of the BPRS.

Contribution to Impact

This study fills the gap in the literature about Islamic MFIs in Indonesia, especially the BPRS. This research also provides an insight into corporate governance practices and Islamic MFIs’ performance using BPRS data. The findings provide useful information for policy makers and regulators.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1753-8394

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Book part
Publication date: 24 March 2021

Jason Spicer and Christa R. Lee-Chuvala

Alternative enterprises – organizations that operate as a business while still also being driven by a social purpose – are sometimes owned by workers or other…

Abstract

Alternative enterprises – organizations that operate as a business while still also being driven by a social purpose – are sometimes owned by workers or other stakeholders, rather than shareholders. What role does ownership play in enabling alternative enterprises to prioritize substantively rational organizational values, like environmental sustainability and social equity, over instrumentally rational ones, like profit maximization? We situate this question at the intersection of research on: (1) stakeholder governance and mission drift in both hybrid and collectivist-democratic organizations; and (2) varieties of ownership of enterprise. Though these literatures suggest that ownership affects the ability of alternative enterprises to maintain their social missions, the precise nature of this relationship remains under-theorized. Using the case of a global, social, and environmental values-based banking network, we suggest that alternative ownership is likely a necessary, but not sufficient, condition to combat mission drift in enterprises that have a legal owner. A supermajority of this network’s banks deploy alternative ownership structures; those operating with these structures are disproportionately associated with social movements, which imprint their values onto the banks. We show how alternative ownership acts through specific mechanisms to sustain enterprises’ missions, and we also trace how many of these mechanisms are endogenous to alternative ownership models. Finally, we find that ownership models vary in how well they enable the expression and maintenance of these social values. A ladder of mission-sustaining ownership models exists, whereby the dominance of substantive, non-instrumental values over operations and investment becomes increasingly robust as one moves up the rungs from mission-driven investor ownership to special shareholder and member-ownership models.

Details

Organizational Imaginaries: Tempering Capitalism and Tending to Communities through Cooperatives and Collectivist Democracy
Type: Book
ISBN: 978-1-83867-989-7

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Book part
Publication date: 6 November 2012

Ritab Al-Khouri

Purpose – In the recent financial crisis, the risk-taking behavior of banks led to severe financial and economic instability. Many reasons have been attributed to the…

Abstract

Purpose – In the recent financial crisis, the risk-taking behavior of banks led to severe financial and economic instability. Many reasons have been attributed to the cause of the financial crisis. This paper attempts to investigate the effect of government ownership, market structure, and regulations on risk-taking behavior in a sample of banks listed on the stock exchanges of the six Gulf Cooperative Council (GCC) markets during the period from 1998 until 2010.

Methodology – The paper utilizes the fixed effect regression model to measure the impact of government ownership indicator, and market structure on risk while controlling for bank-specific characteristics and macroeconomic indicators in the GCC region.

Findings – We find consistent evidence that private-owned banks are more risky than government-owned banks. The results also show a positive and significant relationship between market concentration and risk. Islamic banks show more stability than conventional banks, while government regulations are insignificantly related to risk.

Originality and value – This research is essential to understand the probability of government ownership entities facing losses associated with distress due to both direct and indirect insurance guarantees provided by the government agencies in case of crisis. The results of the study are crucial for understanding the implications of bank ownership and market structure and its relation to risk for the stability of the financial system in the GCC market.

Details

Advances in Financial Economics
Type: Book
ISBN: 978-1-78052-788-8

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Book part
Publication date: 15 December 2015

Giovanni Ferri, Panu Kalmi and Eeva Kerola

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…

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.

Details

Advances in the Economic Analysis of Participatory & Labor-Managed Firms
Type: Book
ISBN: 978-1-78560-379-2

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