Ownership, risk-taking and performance of banks in emerging economies: Evidence from India

Haque, Faizul and Shahid, Rehnuma (2016) Ownership, risk-taking and performance of banks in emerging economies: Evidence from India. Journal of Financial Economic Policy, 8 (3), 282-297. (doi:10.1108/JFEP-09-2015-0054).

Record type: Article

Abstract

Purpose – This paper examines the effect of ownership structure on bank risk-taking and performance in emerging economies by using India as a case study.

Design/methodology/approach – We use generalised method of moments (GMM) estimation technique to analyse an unbalanced panel data set covering 217 bank-year observations from 2008 to 2011.

Findings – Overall, our study results suggest that government ownership is positively associated with default risk and negatively related to bank profitability. Interestingly, we find foreign ownership having a positive effect on default risk and a negative effect on profitability among the listed commercial banks. The effect of ownership concentration on bank risk-taking and profitability appears to be statistically insignificant.

Originality/value – This study is among the first to consider the impact of ownership on bank risk-taking and profitability from an emerging economy perspective. It also addresses the problem of endogenous relationships among ownership, risk-taking and performance of a bank. This study is likely to have implications for policymakers in undertaking regulatory reforms relating to ownership, risk management and banking sector stability.

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