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Ownership Structure and Risk-taking Behavior: Evidence from Banks in Korea and Japan

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Listed author(s):
  • Chun, Sun Eae
  • Nagano, Mamoru
  • Lee, Min Hwan

Abstract

This study analyzes the effects of managerial ownership on the risk-taking behavior of Korean and Japanese banks during the relatively regulated period of the late 1990s to the early 2000s. It finds that managerial ownership alone does not affect either the risk or the profit levels of Korean banks. In contrast, an increase in managerial ownership adds to the total risk of Japanese banks. However, increased risk-taking behavior does not produce higher levels of profit for Japanese banks. The coefficients of the interaction term between franchise value and managerial ownership are negative and statistically significant for both the Korean and the Japanese banking industries. This means that an increase in managerial ownership at banks with high franchise values discourages risk-taking behavior. The result confirms the disciplinary role of franchise value on the risk-taking behavior of banks. It also falls in line with previous literature supporting the moral hazard hypothesis based on research into the economies of the U.S. and other countries.

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File URL: https://mpra.ub.uni-muenchen.de/25334/1/MPRA_paper_25334.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25334.

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Date of creation: Sep 2010
Handle: RePEc:pra:mprapa:25334
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Keywords: Bank ownership structure; managerial ownership; moral hazard; franchise value; risk-taking behavior;

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Find related papers by JEL classification:
  • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
  • G20 - Financial Economics - - Financial Institutions and Services - - - General

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  1. Chen, Carl R & Steiner, Thomas L & Whyte, Ann Marie, 1998. "Risk-Taking Behavior and Management Ownership in Depository Institutions," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(1), pages 1-16, Spring.
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Cited by:

  1. Bowo Setiyono & Amine Tarazi, 2014. "Disclosure, ownership structure and bank risk: Evidence from Asia," Working Papers hal-00947590, HAL.
  2. Lassoued, Naima & Sassi, Houda & Ben Rejeb Attia, Mouna, 2016. "The impact of state and foreign ownership on banking risk: Evidence from the MENA countries," Research in International Business and Finance, Elsevier, vol. 36(C), pages 167-178.

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