Bank Ownership Type Research Articles

Dealing with cross-firm heterogeneity in bank efficiency estimates: Some evidence from Latin America

This paper contributes to the bank efficiency literature through an application of recently developed random parameters models for stochastic frontier analysis. We estimate standard fixed and random effects models, and alternative specifications of random parameters models that accommodate cross-sectional parameter heterogeneity. A Monte Carlo simulations exercise is used to investigate the implications for the accuracy of the estimated inefficiency scores of estimation using either an under-parameterized, over-parameterized or correctly specified cost function. On average, the estimated mean efficiencies obtained from random parameters models tend to be higher than those obtained using fixed or random effects, because random parameters models do not confound parameter heterogeneity with inefficiency. Using a random parameters model, we analyse the evolution of the average rank cost efficiency for Latin American banks between 1985 and 2010. Cost efficiency deteriorated during the 1990s, particularly for state-owned banks, before improving during the 2000s but prior to the sub-prime crisis. The effects of the latter varied between countries and bank ownership types.

Influential factors in lending and profitability in commercial Chinese banks

This paper examines the factors influencing the lending and profitability of Chinese banks. We especially consider the business cycle, financial market factors, and bank characteristics as influential factors. The analytic period used in this paper covers the years from 2006 to 2010 inclusive. We adopt the random effect model as the empirical model. The main test results are as follows: First, the changes in consumer loans and private mortgage loans are pro-cyclical, but corporate loans are contra-cyclical to the changes in the business cycles. Second, private mortgage loans are sensitive to government regulation on capital adequacy. Third, there is no relationship between bank ownership type and lending behavior in commercial Chinese banks. Fourth, the major determinants of Chinese banks’ ROA are the asset concentration of a few banks and bank size. Key words: Business cycle, financial market factors, bank characteristics, random effect model.

Bank’s Organizational Form and Effectiveness of the Recovery Process

Recent empirical findings by Sapienza (2004), Micco and Panizza (2006) and Berger et al. (2008) have pointed to the correlation between bank ownership and lending behavior. We formulate and test hypotheses on the role played by the type of bank ownership (Independent and Dependent) and by the functional distance of the bank in influencing the Loss Given Default Rate (LGDR). This paper refers to data on the Italian Banking System. The empirical results are consistent with our hypotheses on the LGDR and control variables relation. We provide evidence that the LGDR is positively related to the distance between the bank headquarters and the borrower’s location. Besides, the resulting data support the idea that Independent Banks present a low LGDR. Finally, our findings indicate that market power and LGDR are negatively related.

Bank’s organizational form and effectiveness of the recovery process

Recent empirical findings by Sapienza (2004), Micco and Panizza (2006) and Berger et al. (2008) have pointed to the correlation between bank ownership and lending behavior. We formulate and test hypotheses on the role played by the type of bank ownership (Independent and Dependent) and by the functional distance of the bank in influencing the Loss Given Default Rate (LGDR). This paper refers to data on the Italian Banking System. The empirical results are consistent with our hypotheses on the LGDR and control variables relation. We provide evidence that the LGDR is positively related to the distance between the bank headquarters and the borrower’s location. Besides, the resulting data support the idea that Independent Banks present a low LGDR. Finally, our findings indicate that market power and LGDR are negatively related.

Internal auditors' perception about their role in risk management audit in Egyptian banking sector

The purpose of this paper is to constitute a comprehensive framework of risk management and to explore the role played by internal auditors in the audit of risk management. This paper also attempts to collect internal auditors’ opinion regarding other factors on risk-management auditing, where it uses surveys from internal auditors working in banks to test its predictions. The results indicate that there is a strong association between the type of bank ownership and the quality of the risk-based audit procedures. The results show that this relationship is in favour of private and joint-venture banks, hence suggesting that internal auditors see themselves capable of playing a larger role in the audit of risk management framework rather than outsourcing experts such as consulting certified public accountants (CPA). A majority of internal auditors recommend that risk management audit might be carried out, as a second option, by an independent risk management consulting firm.

Bank Financing for SMEs: Evidence Across Countries and Bank Ownership Types

Using data for 91 large banks from 45 countries, this paper finds that foreign, domestic private, and government-owned banks use different lending technologies and organizational structures for SME financing. The extent, type, and pricing of SME loans, however, is not strongly correlated with lending technologies and organizational structures, suggesting that SME financing need not be based only on “relationship lending”. Consistent with these results, we find few significant differences in the extent, type, and pricing of SME loans across bank types. Instead, we find significant differences across developed and developing countries, driven by differences in the institutional and legal environment.

Bank Financing for SMES: Evidence Across Countries and Bank-Ownership Types

Using data for 91 large banks from 45 countries, this paper finds few differences in the extent, type, and pricing of SME loans across foreign, private, and government-owned banks, even though different bank ownership types apply different lending technologies and have different organizational structures. Instead, we find significant differences across banks in developed and developing countries, driven by differences in the economic, institutional, and legal environment, as opposed to by differences in lending technologies and organizational structures. Finally, the link between lending technologies, organizational structures, and SME financing is not consistent with the conventional view that SME lending is based on “relationship lending”.

Earnings Management and Culture: An International Comparison of the Banking Industry

This paper develops a contingency approach, to explain how bank ownership influences bank stability, as well as the effect of competition and regulation on bank stability. Using a country-level panel dataset for the period 1993-2007, we show that savings banks and cooperative banks (stakeholder banks) are more stable than commercial banks, while in systems with a high presence of cooperatives and savings banks, commercial banks are less stable than they otherwise would be. We also show that the effect of competition and bank regulation (in terms of capital regulations, deposit insurance, and activity restrictions) on bank stability is contingent upon the bank ownership type. These findings yield important policy implications. The same regulation and degree of competition has different effects on bank risk taking, depending on the bank’s ownership structure.

Value Creation in Banking

Please enter abstraThis paper investigates the determinants of shareholder value creation focussing on both listed and non-listed European banks over 1997-2002. We find that cost and profit efficiency have a positive influence on shareholder value creation. Leverage is also found to be inversely related to shareholder value creation. Other factors that are found to impact positively on value creation include deposit and loan growth rates, market concentration and employee costs. Finally, substantial variations exist in shareholder value creation across European countries, bank ownership types and also over time.

Bank ownership type and banking relationships

We formulate and test hypotheses about the role of bank ownership type—foreign, state-owned, and private domestic banks—in banking relationships. Our application uses data from India, an important developing nation. The empirical results are consistent with all of our hypotheses with regard to foreign banks. First, these banks tend to establish relationships with relatively transparent firms. Second, firms that have relationships with foreign banks are more likely to enter into multiple banking relationships and to maintain a larger number of such relationships. Finally, firms banking with foreign banks are more likely than others to diversify relationships across bank ownership types. The data are also consistent with the hypotheses that firms with relationships with state-owned banks are relatively unlikely to maintain multiple banking relationships, tend to interact with a smaller number of banks, and less often diversify across ownership types.

Privatization matters: Bank efficiency in transition countries

To investigate the impact of bank privatization in transition countries, we take the largest banks in six relatively advanced countries, namely, Bulgaria, the Czech Republic, Croatia, Hungary, Poland and Romania. Income and balance sheet characteristics and efficiency measures computed from stochastic frontiers are compared across four bank ownership types. Our empirical results support the hypotheses that foreign-owned banks are most efficient and government-owned banks are least efficient. In addition, the importance of attracting a strategic foreign owner in the privatization process is confirmed. However, counter to the conjecture that foreign banks cherry pick the most profitable opportunities, we find that domestic banks have a local advantage in pursuing fee-for-service business. Finally, we show that both the method and the timing of privatization matter to performance; specifically, voucher privatization does not lead to increased efficiency and early-privatized banks are more efficient than later-privatized banks, even though we find no evidence of a selection effect.

Privatization Matters: Bank Efficiency in Transition Countries

To investigate the impact of bank privatization in transition countries, we take the largest banks in six relatively advanced countries, namely, Bulgaria, the Czech Republic, Croatia, Hungary, Poland and Romania. Income and balance sheet characteristics are compared across four bank ownership types. Efficiency measures are computed from stochastic frontiers and used in ownership and privatization regressions having dummy variables for bank type. Our empirical results support the hypotheses that foreign-owned banks are most efficient and government-owned banks are least efficient. In addition, the importance of attracting a strategic foreign owner in the privatization process is confirmed. However, counter to the conjecture that foreign banks cream skim, we find that domestic banks have a local advantage in pursuing fee-for-service business. Finally, we show that both the method and the timing of privatization matter to efficiency; specifically, voucher privatization does not lead to increased efficiency and early-privatized banks are more efficient than later-privatized banks even though we find no evidence of a selection effect.

Bank Ownership and Efficiency

Agency issues associated with different types of firm ownership are an area of concern in many banking systems where state-owned banks operate alongside mutual and private-sector institutions. This paper uses a variety of approaches to model cost and profit inefficiencies as well as technical change for different ownership types in the German banking market. We find little evidence to suggest that privately owned banks are more efficient than their mutual and public-sector counterparts. While all three bank ownership types benefit from widespread economies of scale, inefficiency measures indicate that public and mutual banks have slight cost and profit advantages over their private sector competitors.

A NOTE ON AVERAGE INTEREST CHARGES ON BANK LOANS, THE LOAN MIX, AND MEASURES OF COMPETITION

IN A RECENT STUDY,1 Charles T. Taylor found a significant relationship between the loan mix and the average loan interest rate at individual banks. The regression analysis also showed a negative relationship between bank size (total deposits) and loan interest rates. In addition, an analysis of variance of the regression residuals revealed significant differences between average loan rates at the banks grouped by type of charter, geographic area, and par status. Other categorical variables often used as measures of competition were found to be insignificant. These variables are the number of banks in the city, metropolitan character, and bank ownership type. However, improper specification of Taylor's regression casts doubt on the reliability of the results. This note has three primary purposes. First, Taylor's model is respecified to avoid the problems of multicollinearity. The respecification and empirical estimation of the model facilitate evaluation of the correctness of Taylor's regression results. Second, the model is also specified to facilitate estimation of the yields on the various types of loans across all Federal Reserve districts. Third, the model is modified to estimate the effects of regional location and bank size on the yields on the various loan types. This modification was accomplished through the use of dummy variables. It permits analysis of the effects and significance of these variables on the overall yield on bank loans while retaining direct estimation of the yields on the individual loan classes. In addition to respecifying the model, this study also differs from Taylor's as to such factors as geographic coverage, year, definition of loan classes, and organization of the data.