Banks' Ownership Structure, Risk and Performance

Abstract

This paper studies empirically the effect of ownership concentration on the risk and performance of commercial banks, controlling for shareholders protection laws, bank regulations, and other country and bank specific traits. The sample used comprises 818 banks around 40 countries, for the period from 2000 to 2005. Our analyses show that ownership concentration is more important to explain performance than risk taking. Our main finding is the first empirical evidence of a cubic relationship between ownership concentration and bank performance. Such evidence is supportive of theoretical hypotheses of effective monitoring at low levels of ownership concentration, expropriation or loss of managerial discretion at moderate ownership concentration, and high costs of expropriation at high levels of ownership concentration. Finally, we also find a cubic relationship between ownership concentration and bank risk.