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Optimal level of state ownership in banks: prevention measure versus emergency action—evidence from the new millennia

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  • Emilios Galariotis

    (Special Interest Group in Regulation, Market Structure and Asset Pricing)

  • Iordanis Kalaitzoglou

    (Special Interest Group in Regulation, Market Structure and Asset Pricing)

  • Jacek Niklewski

    (Coventry University)

  • Constantin Zopounidis

    (Special Interest Group in Regulation, Market Structure and Asset Pricing
    Technical University of Crete)

Abstract

Previous literature is rather inconclusive concerning the impact of state ownership on banks. We report that its overall impact is not monotonic as it has so far been implicitly assumed, and that it depends on a contemporaneous conflicting impact on risk and financial performance. This suggests the existence of an optimal level, which we investigate by comparing the relative “overall performance” and efficiency of the institutions. We show that a minimal presence, as opposed to no state ownership can improve performance and efficiency, reduce the likelihood of a bailout, while it is less costly compared to capital injections.

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  • Emilios Galariotis & Iordanis Kalaitzoglou & Jacek Niklewski & Constantin Zopounidis, 2021. "Optimal level of state ownership in banks: prevention measure versus emergency action—evidence from the new millennia," Annals of Operations Research, Springer, vol. 304(1), pages 165-197, September.
    • Handle: RePEc:spr:annopr:v:304:y:2021:i:1:d:10.1007_s10479-021-04085-1
    DOI: 10.1007/s10479-021-04085-1
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    More about this item

    Keywords

    State ownership; Optimal level; Bank efficiency; Indirect impact bank regulation; Macroeconomic shocks;
    All these keywords.

    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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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