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Banking system control, capital allocation, and economy performance

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  • Morck, Randall
  • Deniz Yavuz, M.
  • Yeung, Bernard

Abstract

We observe less efficient capital allocation in countries whose banking systems are more thoroughly controlled by tycoons or families. The magnitude of this effect is similar to that of state control over banking. Unlike state control, tycoon or family control also correlates with slower economic and productivity growth, greater financial instability, and worse income inequality. These findings are consistent with theories that elite-capture of a country's financial system can embed "crony capitalism."

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 100 (2011)
Issue (Month): 2 (May)
Pages: 264-283

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Handle: RePEc:eee:jfinec:v:100:y:2011:i:2:p:264-283

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Web page: http://www.elsevier.com/locate/inca/505576

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Keywords: Banking Ownership structure Capital allocation Economic growth Family business;

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  1. Thammarak Moenjak & Kengjai Watjanapukka & Oramone Chantapant & Teeravit Pobsukhirun, 2010. "New Globalization: Risks and Opportunities for Thailand in the Next Decade," Working Papers 2010-04, Economic Research Department, Bank of Thailand.
  2. Randall Morck, 2011. "Finance and Governance in Developing Economies," NBER Working Papers 16870, National Bureau of Economic Research, Inc.
  3. Enrico Perotti, 2013. "The Political Economy of Finance," Tinbergen Institute Discussion Papers 13-034/IV/DSF53, Tinbergen Institute.
  4. Farla, Kristine & de Crombrugghe, Denis & Verspagen, Bart, 2013. "Institutions, Foreign Direct Investment, and Domestic Investment: crowding out or crowding in?," MERIT Working Papers 054, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  5. Michiel Bijlsma & Andrei Dubovik, 2014. "Banks, Financial Markets and Growth in Developed Countries: a Survey of the empirical literature," CPB Discussion Paper 266, CPB Netherlands Bureau for Economic Policy Analysis.
  6. Randall Morck & M. Deniz Yavuz & Bernard Yeung, 2013. "State-controlled Banks and the Effectiveness of Monetary Policy," NBER Working Papers 19004, National Bureau of Economic Research, Inc.
  7. Bae, Kee-Hong & Kim, Seung-Bo & Kim, Woochan, 2012. "Family control and expropriation at not-for-profit organizations: evidence from korean private universities," MPRA Paper 44029, University Library of Munich, Germany.
  8. Schuster, Philipp & Schmitt, Carina & Traub, Stefan, 2013. "The retreat of the state from entrepreneurial activities: A convergence analysis for OECD countries, 1980–2007," European Journal of Political Economy, Elsevier, vol. 32(C), pages 95-112.

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