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

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...

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Bibliographic Details
Published in:Journal of banking & finance 2010-03, Vol.34 (3), p.485-497
Main Authors: Haw, In-Mu, Ho, Simon S.M., Hu, Bingbing, Wu, Donghui
Format: Article
Language:English
Subjects:
Bank operations
Bank regulation
Bank regulations
Banks
Commercial banks
Concentrated control
Concentrated control Bank operations Legal institutions Bank regulations
Control
Correlation analysis
Cost-effectiveness
East Asia
Financial control
Governance
Institutions
Legal institutions
Ownership
Power
Regulation of financial institutions
Studies
Western Europe
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Summary: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.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2009.08.013