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Pyramiding of Family-owned Banks in Emerging Markets

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

This paper analyzes family-owned banks in Thailand. Using the data before the financial crisis, we find that wealthy families extensively use pyramids to control a business empire which includes financial and non-financial firms. We analyze the entire family group structure and find that one-third of the banks were placed at the second tier near the apex and two-third of the banks were located at deeper tiers in the pyramids. The empirical results show that bottom tier banks have lower performance due to risky loans. This evidence is consistent with the view that when the controlling family maximizes growth and stability of the entire group, lower tier firms are assigned to undertake risky investment. This ownership setting can insulate the entire group from the adverse effect when the investment does not pay off because the family owns relatively low cash flow stake in lower tier firms.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/13473/1/wp2006-4a.pdf
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Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2006-4.

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Length: 30 p.
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:hit:hitcei:2006-4
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  1. Randall Morck, 2005. "How to Eliminate Pyramidal Business Groups The Double Taxation of Inter-corporate Dividends and other Incisive Uses of Tax Policy," NBER Chapters, in: Tax Policy and the Economy, Volume 19, pages 135-179 National Bureau of Economic Research, Inc.
  2. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
  3. repec:aea:jeclit:v:43:y:2005:i:3:p:655-720 is not listed on IDEAS
  4. Caprio, Gerard & Laeven, Luc & Levine, Ross, 2007. "Governance and bank valuation," Journal of Financial Intermediation, Elsevier, vol. 16(4), pages 584-617, October.
  5. Craig O. Brown & I. Serdar Dinç, 2005. "The Politics of Bank Failures: Evidence from Emerging Markets," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1413-1444, November.
  6. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
  7. Breusch, T S & Pagan, A R, 1980. "The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 239-53, January.
  8. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
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