Table of Contents

Research Handbook on International Banking and Governance

Research Handbook on International Banking and Governance

Elgar original reference

Edited by James R. Barth, Chen Lin and Clas Wihlborg

The contributors – top international scholars from finance, law and business – explore the role of governance, both internal and external, in explaining risk-taking and other aspects of the behavior of financial institutions. Additionally, they discuss market and policy features affecting objectives and quality of governance. The chapters provide in-depth analysis of factors such as: ownership, efficiency and stability; market discipline; compensation and performance; social responsibility; and governance in non-bank financial institutions. Only through this kind of rigorous examination can one hope to implement the financial reforms necessary and sufficient to reduce the likelihood and severity of future crises.

Chapter 2: Bank Ownership and Performance: A Global Perspective

Iftekhar Hasan and Liang Song

Subjects: economics and finance, money and banking


Iftekhar Hasan and Liang Song 2.1 INTRODUCTION A large literature (e.g., Levine and Zervos, 1998; Beck et al., 2000; Levine et al., 2000; Claessens and Laeven, 2003) has shown that a well-functioning banking system is associated with higher economic growth by mobilizing and allocating funds efficiently and providing an important role in governing firms. Thus, how to govern banks effectively to improve bank performance becomes an important question because it is related to a country’s economic development. In addition to shareholder protection laws and bank regulations, ownership structure is a very important governance mechanism for banks (Shleifer and Vishny, 1997; Caprio et al., 2007). In particular, concentrated ownership can reduce the incentive of controlling shareholders to expropriate corporate resources from firms (Jensen and Meckling, 1976). In our study, we assemble data on ownership of banks around the world to assess its impact on banks’ performance. More importantly, superior corporate governance measured by concentrated ownership may be more critical in the financial crisis period because the decline in the expected return on investment may motivate controlling shareholders to expropriate more (Johnson et al., 2000; Mitton, 2002). Thus, we also examine whether the relationship between bank ownership and performance is more pronounced in a period of financial crisis. Specifically, we construct a new database covering 11 888 publicly traded and private banks across 44 countries and trace the ownership of banks in 2006 to identify the controlling shareholders’ voting rights.1 We find that banks generally have a controlling owner with significant control...

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