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Ownership structure and bank performance in EU-15 countries

Ownership structure and bank performance in EU-15 countries The purpose of this paper is to investigate the impact of ownership structure on bank performance in EU-15 countries. Specifically, it examines to what extent shareholder type and the degree of shareholder concentration affect the banks’ profitability, risk and technical efficiency.Design/methodology/approachThis study uses a sample of 1,459 banks operating in EU-15 countries from 2011 to 2015. It constructs a set of continuous variables capturing the ownership nature, the concentration and their interactions, and estimates an instrumental variable random effect (IV-RE) model. In addition, a panel data stochastic frontier analysis is conducted to estimate the time-varying technical efficiency for profitability and costs.FindingsThe empirical analysis shows that bank performance is affected by shareholder type. When regressed against the entrenchment behavior of the controlling owner hypothesis, banks with large-block shareholders are more profitable, less risky and more profit efficient. Further, ownership concentration reverts the negative effect related to the institutional, bank and industry ownership.Research limitations/implicationsThe results support the hypothesis that concentrated ownership helps to overcome agency problems. They also confirm that managerial involvement in banks’ capital enhances a bank’s profit and its volatility.Originality/valueTo the best of the authors’ knowledge, this is the first study to consider the ownership nature, the concentration and their interaction using continuous variables, which allows for more precise inferences. The results provide new evidence that bank profitability, cost efficiency and risk are affected by the type of direct shareholders. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Corporate Governance Emerald Publishing

Ownership structure and bank performance in EU-15 countries

Corporate Governance , Volume 18 (3): 22 – Jun 1, 2018

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1472-0701
DOI
10.1108/cg-06-2017-0112
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to investigate the impact of ownership structure on bank performance in EU-15 countries. Specifically, it examines to what extent shareholder type and the degree of shareholder concentration affect the banks’ profitability, risk and technical efficiency.Design/methodology/approachThis study uses a sample of 1,459 banks operating in EU-15 countries from 2011 to 2015. It constructs a set of continuous variables capturing the ownership nature, the concentration and their interactions, and estimates an instrumental variable random effect (IV-RE) model. In addition, a panel data stochastic frontier analysis is conducted to estimate the time-varying technical efficiency for profitability and costs.FindingsThe empirical analysis shows that bank performance is affected by shareholder type. When regressed against the entrenchment behavior of the controlling owner hypothesis, banks with large-block shareholders are more profitable, less risky and more profit efficient. Further, ownership concentration reverts the negative effect related to the institutional, bank and industry ownership.Research limitations/implicationsThe results support the hypothesis that concentrated ownership helps to overcome agency problems. They also confirm that managerial involvement in banks’ capital enhances a bank’s profit and its volatility.Originality/valueTo the best of the authors’ knowledge, this is the first study to consider the ownership nature, the concentration and their interaction using continuous variables, which allows for more precise inferences. The results provide new evidence that bank profitability, cost efficiency and risk are affected by the type of direct shareholders.

Journal

Corporate GovernanceEmerald Publishing

Published: Jun 1, 2018

Keywords: Ownership concentration; Bank performance; Ownership nature; Panel data stochastic frontier analysis; G21; G32; C33

References