Concentrated control, institutions, and banking sector: An international study

In Mu Haw, Simon S.M. Ho, Bingbing HU*, Donghui Wu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

61 Citations (Scopus)

Abstract

Using a broad sample of listed commercial banks in East Asia and Western Europe, this paper investigates the relations among concentrated control, a set of bank operating characteristics, and legal and regulatory regimes. We find that banks with concentrated control exhibit poorer performance, lower cost efficiency, greater return volatility, and higher insolvency risk, relative to widely held ones. We also document that legal institutions and private monitoring effectively reduce the detrimental effects of concentrated control and that official disciplinary power plays a weak governance role, whereas government intervention exacerbates the adverse effects. Further evidence shows that the relations between control concentration and bank operating characteristics are curvilinear and vary according to the types of controlling owners. Overall, our findings support the contention that country-level institutions play important roles in constraining insider expropriation, and that private monitoring mechanisms are more effective than are public rules and supervision in governing banks.

Original languageEnglish
Pages (from-to)485-497
Number of pages13
JournalJournal of Banking and Finance
Volume34
Issue number3
DOIs
Publication statusPublished - Mar 2010

Scopus Subject Areas

  • Finance
  • Economics and Econometrics

User-Defined Keywords

  • Bank operations
  • Bank regulations
  • Concentrated control
  • Legal institutions

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