Bank Ownership, Market Structure and Risk

By Gianni De Nicolò, Elena Loukoianova. Social Science Research Network, 2007

215 citations recorded by the source corpus.

This paper presents a model of a banking industry with heterogeneous banks that delivers predictions on the relationship between banks' risk of failure, market structure, bank ownership, and banks' screening and bankruptcy costs. These predictions are explored empirically using a panel of individual banks data and ownership information including more than 10,000 bank-year observations for 133 non-industrialized countries during the 1993-2004 period. Four main results obtain. First, the positive and significant relationship between bank concentration and bank risk of failure found in Boyd, De Nicolo and Al Jalal (2006) is stronger when bank ownership is taken into account, and it is strongest when state-owned banks have sizeable market shares. Second, conditional on country and firm specific characteristics, the risk profiles of foreign (state-owned) banks are significantly higher than (not significantly different from) those of private domestic banks. Third, private domestic banks do take on more risk as a result of larger market shares of both state-owned and foreign banks. Fourth, the model rationalizes this evidence if both state-owned and foreign banks have either larger screening and/or lower bankruptcy costs than private domestic banks, banks' differences in market shares, screening or bankruptcy costs are not too large, and loan markets are sufficiently segmented across banks of different ownership.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/b35e35e4a53078098ae54fe94d5ab6506110f66e

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Citations in the corpus

Competition and risk in South East Asian commercial banking (2012, background): “In contrast, others such as Koetter and Poghosyan (2009), Boyd et al. (2006), De Nicolo and Loukoianova (2006), Schaeck et al. (2006), De Nicolo (2000) and Jayaratne and Strahan (1998) find that in more competitive banking markets, the probability of *Corresponding author.”
Foreign Banks and the Vienna Initiative: Turning Sinners into Saints? (2012, unknown): “For the period 1999–2004, ownership information is taken from De Nicolò and Loukoianova (2007).”
Bank Competition and Financial Stability (2008, unknown): “Boyd et al. (2006) and De Nicolo and Loukoianova (2006 ) b oth find that the Z-index, an inverse measure of bank risk, decreases with banking market concentration (measured using the Herfindahl-Hirschman index or HHI), implying that the risk of bank failure rises in more concentrated markets.”
Competition and Stability in Banking (2016, unknown): “…and less financial stability with higher risk exposure and more bank losses (Barth, Caprio, and Levine (2004), Caprio and Martinez Peria (2002), De Nicolò and Loukoianova (2007)); it eliminates the market for corporate control; creates an uneven playing field (with implicit and explicit…”
Bank Competition and Financial Stability: Much Ado About Nothing? (2015, unknown): “…al., 2014; Agoraki et al., 2011), ownership controls, i.e., foreign and state bank ownership (e.g. Bazzana and Yaldiz, 2010; Berger et al., 2009; De Nicolò and Loukoianova, 2007) and macroeconomic variables defined at the country level, such as GDP growth and real interest rate (Agoraki et al.,…”