Ownership Structure and Risk in Publicly Held and Privately Owned Banks

Thierno Amadou Barry (1) , Laetitia Lepetit (1) , Amine Tarazi (1)

1 LAPE - Laboratoire d'Analyse et de Prospective Economique

Using detailed ownership data for a sample of European commercial banks, we analyze the link between ownership structure and risk in both privately owned and publicly held banks. We consider five categories of shareholders (managers/directors, institutional investors, non-financial companies, individuals/families, and banks), a breakdown specific to our dataset. Controlling for various factors, we find that ownership structure is significant in explaining risk differences but that such findings mainly hold for privately owned banks. On the whole, a higher equity stake of either individuals/families or banking institutions is associated with a decrease in asset risk and default risk. Also, institutional investors and non-financial companies seem to impose the riskiest strategies when they hold higher stakes. We further find no significant differences in asset risk and default risk between publicly-held and privately-owned banks. Moreover, for public banks, changes in ownership structure do not affect risk taking. Market forces seem to align the risk-taking behavior of public banks and the ownership structure is no more a determinant to explain risk differences. An exception is that higher stakes of banking institutions in public banks are associated with lower credit and default risk.

Domaines: Economies et finances

Thierno Amadou Barry, Laetitia Lepetit, Amine Tarazi. Ownership Structure and Risk in Publicly Held and Privately Owned Banks. Journal of Banking and Finance, 2011, 35 (5), pp.1237-1340. ⟨10.1016/j.jbankfin.2010.10.004⟩. ⟨hal-00918543⟩