Ownership Structure, Risk and Performance in the European Banking Industry
Audencia Nantes School of Management
Bocconi University - Department of Finance
Journal of Banking and Finance, Vol. 31, pp. 2127-2149, 2007
We compare the performance and risk of a sample of 181 large banks from 15 European countries over the 1999-2004 period and evaluate the impact of alternative ownership models, together with the degree of ownership concentration, on their profitability, cost efficiency and risk. Three main results emerge. First, after controlling for bank characteristics, country and time effects, mutual banks and government-owned banks exhibit a lower profitability than privately-owned banks, in spite of their lower costs. Second, public sector banks have poorer loan quality and higher insolvency risk than other types of banks while mutual banks have better loan quality and lower asset risk than both private and public sector banks. Finally, while ownership concentration does not significantly affect a bank's profitability, a higher ownership concentration is associated with better loan quality, lower asset risk and lower insolvency risk. These differences, along with differences in asset composition and funding mix, indicate a different financial intermediation model for the different ownership forms.
Number of Pages in PDF File: 25
Keywords: European banking, Ownership, Governance, Performance
JEL Classification: G21, G32, G34
Date posted: October 10, 2007
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