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Pyramidal group structure and bank risk in Thailand

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  • Bunkanwanicha, Pramuan
  • Gupta, Jyoti
  • Wiwattanakantang, Yupana

Abstract

This paper investigates how banks and finance companies operate in business groups. Using uniquely detailed ownership data from Thailand, we find that the controlling shareholders extensively use pyramids to control banks and finance companies and assign different lending strategies across pyramidal tiers. Lower-tier banks tend to extend loans more aggressively and perform more poorly, while upper tier banks carry out more profitable investments. After the crisis hit, upper-tier banks survived and almost all lower-tier banks went bankrupt. Our results suggest that the multilayer organizational structure of bank ownership can affect a bank’s lending behavior and its resistance to economic shocks.

Suggested Citation

  • Bunkanwanicha, Pramuan & Gupta, Jyoti & Wiwattanakantang, Yupana, 2016. "Pyramidal group structure and bank risk in Thailand," Journal of Comparative Economics, Elsevier, vol. 44(2), pages 272-288.
  • Handle: RePEc:eee:jcecon:v:44:y:2016:i:2:p:272-288
    DOI: 10.1016/j.jce.2015.12.002
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    More about this item

    Keywords

    Bank; Business group; Pyramid; Ownership structure; Thailand;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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