Banks’ Risk-taking and State Ownership: Evidence from Asian Emerging Markets

Ai-Xin Lee () and Chee-Wooi Hooy
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Ai-Xin Lee: Finance Section, School of Management, Universiti Sains Malaysia

Malaysian Journal of Economic Studies, 2020, vol. 57, issue 1, 59-80

Abstract: This paper examines the relationship between state ownership and banks’ risk-taking in nine Asian emerging markets for the period 2009 to 2017. The finding shows that state-owned banks are associated with higher risk-taking in terms of credit risk and return volatility. In addition, we investigate the effect of corporate governance (CG) mechanism with monitoring committee, board independence and gender diversity on state-owned banks’ risk-taking. We find that the presence of monitoring committee on board has a reducing effect on state-owned banks’ risk-taking. We further argue that independent directors help to reduce banks’ risk-taking where their supervision should be robust enough even if there is huge government intervention. Nonetheless, we do not find strong evidence on the role of female directors. In a nutshell, board functions play a crucial role in monitoring and supervising banks’ investment decisions to prevent excessive risk-taking from the government, which is relatively important in the context of Asian emerging markets.

Keywords: Asian emerging markets; bank risk-taking; board; corporate governance; state ownership (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:mjr:journl:v:57:y:2020:i:1:p:59-80

DOI: 10.22452/MJES.vol57no1.4

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