Ownership structure and risk-taking: Comparative evidence from private and state-controlled banks in China

Yizhe Dong, Chao Meng, Michael Firth , Wenxuan Hou

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34 Citations (Scopus)

Abstract

This study examines the impact of ownership structure on Chinese banks' risk-taking behaviours. We classify the Chinese commercial banks into three categories based on the types of controlling shareholder, and find that banks controlled by the government (GCBs) tend to take more risks than those controlled by state-owned enterprises (SOECBs) or private investors (PCBs). This is attributed to the severe political intervention and weak incentives to follow prudent bank management practices for GCBs. We also find that the results are more pronounced among banks with concentrated ownership presumably because the large controlling power helps to enhance the monitoring of the management and promotes prudent operating procedures. Our findings have important implications for the ongoing reform in the Chinese banking sector.
Original languageEnglish
Pages (from-to)120-130
Number of pages11
JournalInternational Review of Financial Analysis
Volume36
Early online date2 Apr 2014
DOIs
Publication statusPublished - Dec 2014

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Keywords

  • Bank
  • Risk-taking
  • State ownership
  • Ownership concentration
  • China

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