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

Chaiyasit Anuchitworawong

No 2004-15, CEI Working Paper Series from Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University

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.

Keywords: Implicit guarantee; Risk; Ownership Structure; Managerial Discretion; Thai Financial Institutions (search for similar items in EconPapers)
JEL-codes: G13 G21 G32 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2004-09
Note: July 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hit:hitcei:2004-15

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