International Journal of Social Sciences and Management Review

OWNERSHIP CONCENTRATION, EXTERNAL GOVERNANCE AND BANKS’ CAPITAL BUFFERS

Author: Shehong Hou

ABSTRACT

We investigate the effect of banks ownership on capital buffers while there exists interaction between ownership and external governances with a method of System GMM for China banks. We find that the increase of ownership concentration can promote the increase of capital buffers, while government’s implicit guarantee and lower ratio of interbank deposits may moderate this effect. The robustness test by excluding the 5 largest nation-owned banks support our finding. Strengthen the market-oriented reform in Chinese banks, adequately increase the ratio of large shareholders, accelerate the development of interbank market and reduce government implicit guarantees can promote Chinese banks stability.

Keywords:  banks’ ownership, external governance, capital buffers, System GMM

REFERENCES

• Anginer, D., Demirguc-Kunt, A., Huizinga, H., Ma, K., 2016. Corporate governance and bank capitalization strategies. J. Financial. Intermediatory. 26, 1–27.
• Barry, T.A., Lepetit, L., Tarazi, A., 2011. Ownership structure and risk in publicly held and privately owned banks. J. Banking Finance 35 (5), 1327–1340.
• Beltratti, A., Stulz, R.M., 2012. The credit crisis around the globe: why did some banks perform better? J. Financ. Econ. 105 (1), 1–17.
• Bennett, R.L., Hwa, V., Kwast, M.L., 2015. Market discipline by bank creditors during the 2008–2010 crisis. J. Financ. Stab. 20, 51–69.
• Berger, A.N., DeYoung, R., Flannery, M.J., Lee, D., Öztekin, Ö., 2008. How do large banking organizations manage their capital ratios? J. Financ. Serv. Res. 34(2–3), 123–149.
• Berger, A.N., Bouwman, C.H.S., 2013. How does capital affect bank performance during financial crises? J. Financ. Econ. 109 (1), 146–176.
• Berle A m g. The Modern Corporation and Private Property [M]. New York: MacMillan, 1933.
• Blundell, R., Bond, S., 1998. Initial conditions and moment restrictions in dynamic panel data models. J. Econometr. 87 (1), 115–143.
• Boyd, J.H., Runkle, D.E., 1993. Size and performance of banking firms: testing the predictions of theory. J. Monetary Econ. 31 (1), 47–67.
• Burkartm, Gromb D, Panunzif. 1997.Large shareholders, monitoring and the value of the firm.J. Quarterly Journal of Econ, 112, 693-729.
• Chalermchatvichien, P., Jumreornvong, S., Jiraporn, P., Singh, M., 2014. The effect of bank ownership concentration on capital adequacy, liquidity, and capital stability. J. Financ. Serv. Res. 45 (2), 219–240.
• Demsetz, R.S., Saidenberg, M.R., Strahan, P.E., 1996. Banks with something to lose: the disciplinary role of franchise value. Fed. Reserve Bank N. Y. Econ. Policy Rev. 2 (2), 1–14.
• Distinguin, I., Kouassi, T., Tarazi, A., 2013. Interbank deposits and market discipline: evidence from Central and Eastern Europe. J. Comp. Econ. 41 (2), 544–560.
• Easterbrook, F.H., 1984. Two agency-cost explanations of dividends. Am. Econ. Rev.74 (4), 650–659.
• Flannery, M.J., Rangan, K.P., 2008. What caused the bank capital build-up of the1990? Rev. Finance 12 (2), 391–429.
• Fonseca, A.R., Gonzlez, F., 2010. How bank capital buffers vary across countries: The influence of cost of deposits, market power and bank regulation. J. Banking Finance 34 (4), 892–902.
• Forssbæck, J., 2011. Ownership structure, market discipline, and banks’ risk-taking incentives under deposit insurance. J. Banking Finance 35 (10), 2666–2678.
• Galai, D., Masulis, R.W., 1976. The option pricing model and the risk factor of stock. J. Financ. Econ. 3 (1–2), 53–81.
• Gropp, R., Hakenes, H., Schnabel, I., 2011. Competition, risk-shifting, and public bail-out policies. Rev. Financ. Stud. 24 (6), 2084–2120.
• Haw, I.-M., Ho, S.S.M., Hu, B., Wu, D., 2010. Concentrated control, institutions, and banking sector: an international study. J. Banking Finance 34 (3), 485–497.
• Jensen, M.C., Meckling, W.H., 1976. Theory of the firm: managerial behavior, agency costs and ownership structure. J. Financ. Econ. 3 (4), 305–360.
• Jokipii, T., Milne, A., 2011. Bank capital buffer and risk adjustment decisions. J. Financ. Stab. 7 (3), 165–178.
• Kaufman, G.G., 2014. Too big to fail in banking: what does it mean? J. Financ. Stab.13, 214–223.
• Keeley, M.C., 1990. Deposit insurance, risk, and market power in banking. Am.Econ. Rev. 80 (5), 1183–1200.
• Klein P, Maidl C, Woyand C. 2021.Bank ownership and capital buffers: how external governance affects internal control. J. Financ Stab. 54(100857).
• Laeven, L., Levine, R., 2009. Bank governance, regulation and risk taking. J. Financ.Econ. 93 (2), 259–275.
• Marcus, A.J., 1984. Deregulation and bank financial policy. J. Banking Finance 8 (4),557–565.
• Milne, A., Whalley, A.E., 2001. Bank Capital Regulation and Incentives forRisk-Taking. London City University Working Paper.
• Nier, E., Baumann, U., 2006. Market discipline, disclosure and moral hazard in banking. J. Financ. Intermed. 15 (3), 332–361.
• Rochet, J.-C., Tirole, J., 1996. Interbank lending and systemic risk. J. Money Credit Banking 28 (4), 733–762.
• Saunders, A., Strock, E., Travlos, N.G., 1990. Ownership structure, deregulation, and bank risk taking. J. Finance 45 (2), 643–654.
• Schnabel, I., 2009. The role of liquidity and implicit guarantees in the German twin crisis of 1931. J. Int. Money Finance 28 (1), 1–25.
• Shehzad, C.T., de Haan, J., Scholtens, B., 2010. The impact of ownership concentration on impaired loans and capital adequacy. J. Banking Finance 34(2), 399–408.