State ownership and bank lending: evidence from Turkish banking

State ownership, macroprudential policies, and bank lending

In this paper we examine the link between state ownership and the choice of public debt versus bank debt in an international context. Using a large sample of privatized firms from 62 countries over the 2001-2014 period, we find that state ownership is significantly positively associated with the use of bank debt financing, suggesting that privatized firms benefit from the soft budget constraint associated with state ownership. This result holds after conducting several endogeneity and robustness tests. We further find that the positive relation between state ownership and bank debt reliance is more pronounced in countries with high government ownership of banks, high corruption in bank lending, a left-oriented government, and a collectivist national culture, which provides additional support for the soft budget constraint view. Finally, in external validity tests we find that state ownership affects other aspects of debt structure such as debt maturity and debt security.

This paper examines the impact of market structure and state ownership on bank lending as a transmission channel for monetary policies. For controlling the effects of bank heterogeneities and macroeconomic factors on bank lending, dynamic models using two-step difference GMM with panel data collected from 25 Vietnamese commercial banks and the Vietnamese banking sector from 1999 to 2017 are employed. Results indicate that a higher level of concentration in the banking market and state ownership dampen the expected impacts of interbank interest rate on the loan growth in commercial banks, which decreases the effectiveness of monetary policy via the bank lending channel. These results are robust regarding the use of alternative measures of market structure and the inclusion of event time variables in the dynamic model. Based on the findings, monetary policy could be implied using the significant moderating impacts of state-ownership as well as the market structure of the Vietnamese banking sector on the relationship between bank loan supply and interbank interest rate.

Using a large sample of privatized firms, we find that state ownership is significantly positively associated with the use of bank debt financing, suggesting that privatized firms benefit from the soft budget constraint associated with state ownership. We further find that the relation is more pronounced in countries with high government ownership of banks, high corruption in bank lending, a left-oriented government, and a collectivist national culture, which provides additional support for the soft-budget-constraint view. Finally, in external validity tests, we find that state ownership affects other aspects of debt structure, such as debt maturity and debt security.

Media ownership, concentration and corruption in bank lending

Building on the pioneering study by Beck, Demirguc-Kunt and Levine (2006), we examine the effects of media ownership and concentration on corruption in bank lending. Using the unique World Bank dataset covering more than 5,000 firms across 59 countries, we find strong evidence that that state ownership of media is associated with higher levels of bank corruption. We also find that media concentration increases corruption both directly and indirectly through its interaction with media state ownership. In addition, we find that media state ownership and media concentration both accentuate the positive link between official supervisory power and lending corruption and attenuate the negative link between the regulations that empower private monitoring and corruption in lending. Furthermore, the links between media structure and corruption are more pronounced when the borrowing firm is privately owned.

Does an initial public offering (IPO) improve bank lending in developing economies? Our paper aims to address this question using a sample of Chinese banks. We find that banks place a greater weight on borrower performance in determining lending terms following bank IPOs. We also find a significant increase in borrower accounting conservatism post lender IPO. The combined evidence suggests that going public improves banks’ incentives for both screening and monitoring. In the cross section, these changes are more pronounced for banks with larger improvements in corporate governance and performance, for those with state ownership, and for periods after the split share reform. Our findings suggest that partial privatization through an IPO is a viable mechanism for state-owned banks in China to improve lending practices. These findings have important implications for policymakers from other developing economies.

With the pandemic caused by the novel coronavirus SARS-CoV-2 raging around the world, many countries’ economies are at a crucial juncture. The COVID-19 external shock to the economy has the potential to affect corporate governance profoundly. This article explores its possible impact on comparative corporate governance. For an economy to operate successfully, a society must first find a politically sustainable social equilibrium. In many countries, historical crises – such as the Great Depression and World War II – have resulted in a reconfiguration of corporate governance institutions that set the course for generations. While it is not yet clear whether COVID-19 will have a similar effect, it is possible that it will change patterns of what kind of firms are – from an evolutionary perspective – likely to survive, and which ones are not. We argue that to some extent, it will accelerate ongoing trends, whereas in other areas it put corporations on an entirely new course. We observe three trends, namely the need for resilience, a growth of nationalist policies in corporate law, and an increasing orientation toward ‘stakeholder’ interests. First, firms will have to become resilient to the crisis, and consequently long-term oriented. Corporations that are not operating merely on an arm’s length capital market basis but are integrated into a network, generated by core shareholders, state ownership or bank lending may be more likely to survive. In addition, firms are beginning to interact with their workforce differently in their attempts to maintain what could be called ‘healthy human capital.’ Second, we are likely to see a resurgence of nationalism in corporate governance to ensure that foreign ownership and interconnected supply chains do not put national security at risk. Third, the existing critiques of inequality but also climate change awareness will accelerate the trend toward a broadening of corporate purpose toward ‘stakeholderism’ and public policy issues. As in the past years, institutional investors acting as ‘universal owners’ will play a role in shaping this trend.

State ownership and bank lending: evidence from Turkish banking

In many countries, the 1980s was a decade of unprecedented growth in bank lending in response to de-regulation and increased competition. Although in the early phase of the expansion banking appeared to be very profitable, developments towards the end of the decade indicated that profitability had been over-estimated and risks under-rated. By the end of the decade, the overall financial performance of banks in many countries and most notably banks in Scandinavia and the British clearing banks deteriorated sharply. Massive rescue and support operations (state ownership, capital injections, guarantees, etc.) were mounted in Sweden, Norway and Finland. Atle-Berg (1993) calculates that the volume of official support operations by 1992 amounted to 2.8 per cent, 3.1 per cent and 7.2 per cent of GNP in Norway, Sweden and Finland, respectively. Further detail of support operations is given in Goldstein and Folkerts-Landau (1993).

Public ownership and local bank lending at the time of the Covid-19 pandemic: Evidence from Indonesia

Rural transformation, inequality, and the origins of microfinance

Public Ownership and Local Bank Lending at the Onset of the COVID-19 Pandemic: Evidence from Indonesia

What determines the development of rural financial markets? Starting from a simple theoretical framework, we derive the factors shaping the market entry of rural microfinance institutions across time and space. We provide empirical evidence for these determinants using the expansion of credit cooperatives in the 236 eastern counties of Prussia between 1852 and 1913. This setting is attractive as it provides a free market benchmark scenario without public ownership, subsidization, or direct regulatory intervention. Furthermore, we exploit features of our historical set-up to identify causal effects. The results show that declining agricultural staple prices, as a feature of structural transformation, leads to the emergence of credit cooperatives. Similarly, declining bank lending rates contribute to their rise. Low asset sizes and land inequality inhibit the regional spread of cooperatives, while ethnic heterogeneity has ambiguous effects. We also offer empirical evidence suggesting that credit cooperatives accelerated rural transformation by diversifying farm outputs.

PurposeBranching is one of the crucial strategic non-price actions for banks. Previous studies on the impact of state ownership upon banks focus on bank lending behavior. This paper aims to offer a novel investigation of how state ownership affects bank branching behavior by examining state-controlled commercial banks (SCCBs) in the context of the largest developing and transitional country China.Design/methodology/approachThe two-part model (TPM) is applied to analyze the branching decision process. In the first stage, the dependent variable is the choice of bank branching dynamics and in the second stage the dependent variable is the number of new branches or the number of closed branches. For robustness check, the ordered probit selection model allowing for interdependence of the two stage decisions is also employed.FindingsUsing a unique dataset of bank branches in China, this paper finds that the branching decisions of Chinese SCCBs are driven by both profit motivated factors including population size, population density, income level, financial development and banking competition and politically motivated factors as represented with the proportion of SOEs. As a comparison, branching decisions of joint-stock banks in China are fully determined by profit motivated factors.Originality/valueFirst, this study is the first to explore the effect of state ownership on bank branching decisions, providing a new insight on the literature regarding to the impact of state ownership on bank decisions. Second, this study explores the potential effect of politically motivated factors on bank branching decisions, filling the gap in bank branching literature. Third, this study can contribute to bank branching literature by enriching the limited understanding of how SCCBs make branching decisions. Lastly, this study applies novel empirical strategies to analyze bank branching decisions, including the TPM and the ordered probit selection model.