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Government intervention, bank ownership and risk-taking during the Indonesian financial crisis

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  • Agusman, Agusman
  • Cullen, Grant S.
  • Gasbarro, Dominic
  • Monroe, Gary S.
  • Zumwalt, J. Kenton

Abstract

The 1997/98 financial crisis forced the Indonesian government to inject capital into selected banks, introduce deposit insurance and change capital requirements. This study investigates the relation between highly concentrated ownership and bank risk-taking using a sample of 52 insured private commercial Indonesian banks during the 1995–2003 period. For restructured banks, ownership concentration is positively related to overall risk, and negatively related to credit and liquidity risks, especially during the relaxed capital adequacy requirement period. Liquidity risk is reduced when the government and owners contribute additional capital, and credit risk is lowered as the government removes bad loans from problematic banks.

Suggested Citation

  • Agusman, Agusman & Cullen, Grant S. & Gasbarro, Dominic & Monroe, Gary S. & Zumwalt, J. Kenton, 2014. "Government intervention, bank ownership and risk-taking during the Indonesian financial crisis," Pacific-Basin Finance Journal, Elsevier, vol. 30(C), pages 114-131.
  • Handle: RePEc:eee:pacfin:v:30:y:2014:i:c:p:114-131
    DOI: 10.1016/j.pacfin.2014.07.003
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    Cited by:

    1. repec:pal:jbkreg:v:19:y:2018:i:3:d:10.1057_s41261-017-0049-9 is not listed on IDEAS
    2. repec:wsi:ijfexx:v:04:y:2017:i:02n03:n:s242478631750027x is not listed on IDEAS
    3. repec:eee:pacfin:v:43:y:2017:i:c:p:188-199 is not listed on IDEAS
    4. Linnenluecke, Martina K. & Chen, Xiaoyan & Ling, Xin & Smith, Tom & Zhu, Yushu, 2016. "Emerging trends in Asia-Pacific finance research: A review of recent influential publications and a research agenda," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 66-76.

    More about this item

    Keywords

    Government intervention; Bank risk taking; Ownership structure; Blanket guarantee; Capital regulation;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • 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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