Ownership structure and risk-taking: Comparative evidence from private and state-controlled banks in China

Yizhe Dong, Chao Meng, Michael Firth and Wenxuan Hou

International Review of Financial Analysis, 2014, vol. 36, issue C, 120-130

Abstract: This study examines the impact of ownership structure on Chinese banks' risk-taking behaviours. We classify the Chinese commercial banks into three categories based on the types of controlling shareholder, and find that banks controlled by the government (GCBs) tend to take more risks than those controlled by state-owned enterprises (SOECBs) or private investors (PCBs). This is attributed to the severe political intervention and weak incentives to follow prudent bank management practices for GCBs. We also find that the results are more pronounced among banks with concentrated ownership presumably because the large controlling power helps to enhance the monitoring of the management and promotes prudent operating procedures. Our findings have important implications for the ongoing reform in the Chinese banking sector.

Keywords: Bank; Risk-taking; State ownership; Ownership concentration; China (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 G34 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (61)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:36:y:2014:i:c:p:120-130

DOI: 10.1016/j.irfa.2014.03.009

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