Ownership, risk-taking and performance of banks in emerging economies

Faizul Haque and Rehnuma Shahid

Journal of Financial Economic Policy, 2016, vol. 8, issue 3, 282-297

Abstract: Purpose - This paper examines the effect of ownership structure on bank risk-taking and performance in emerging economies by using India as a case study. Design/methodology/approach - We use generalised method of moments (GMM) estimation technique to analyse an unbalanced panel data set covering 217 bank-year observations from 2008 to 2011. Findings - Overall, our study results suggest that government ownership is positively associated with default risk and negatively related to bank profitability. Interestingly, we find foreign ownership having a positive effect on default risk and a negative effect on profitability among the listed commercial banks. The effect of ownership concentration on bank risk-taking and profitability appears to be statistically insignificant. Originality/value - This study is among the first to consider the impact of ownership on bank risk-taking and profitability from an emerging economy perspective. It also addresses the problem of endogenous relationships among ownership, risk-taking and performance of a bank. This study is likely to have implications for policymakers in undertaking regulatory reforms relating to ownership, risk management and banking sector stability.

Keywords: Government ownership; Foreign shareholding; Bank risk-taking; Bank performance; G21; G32; L25 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:v:8:y:2016:i:3:p:282-297

DOI: 10.1108/JFEP-09-2015-0054

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