Impact of ownership structure on risk-taking behavior of South Asian banks

Ahmed Imran Hunjra,Tahar Tayachi,Rashid Mehmood

doi:10.22495/cocv17i3art8

Ahmed Imran Hunjra, Tahar Tayachi + Show 1 more

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https://doi.org/10.22495/cocv17i3art8

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Abstract

The implementation of an effective risk management policy is necessary for the survival and success of banks. Ownership structure changes the risk-taking behavior of banks. Therefore, we analyze the impact of the ownership structure on risk-taking behavior of banks in emerging markets (i.e., Pakistan, India, and Bangladesh). We take public, private and foreign ownership of banks in this study. We collect the data from 64 banks of selected countries from 2011 to 2018. We measure risk-taking as capital adequacy, leverage coverage ratio, non-performing loan ratio, and return volatility. We use two-step system dynamic panel estimation for analyzing the results. We find that public and private banks have significant relationship with the risk-taking of banks. Furthermore, public and private banks show more risk-taking behavior as compared to foreign banks in all selected countries.

Highlights

We select emerging countries for our study because these countries present a unique economy
The banking sector is the key part of the economy of South Asian countries and a stable and profitable system of this sector is the requirement for a strong economy (Nisar, Peng, Wang, & Ashraf, 2018)
The objective of our study is to find the effect of ownership structure on risk-taking of banks in Pakistan, India, and Bangladesh

Summary

Introduction

We select emerging countries for our study because these countries present a unique economy. Banks cover the investments through loans and they provide an interest-based business to the financial market. These financial markets are controlled by the central banking system which acts as an intermediary (Hammami & Boubaker, 2015). These banking investments are highly risky and the leverage is mostly in the shape of liquid assets. Banks management thinks that public or private ownership is not concerned with the investment or profitability of banks. State-owned banks have lower quality of the loan and increased insolvency risk as compared to mutual and private banks (Iannotta, Nocera, & Sironi, 2007)

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