Ownership Structure, Risk and Performance in the European Banking Industry

Journal of Banking and Finance, Vol. 31, pp. 2127-2149, 2007

25 Pages Posted: 10 Oct 2007  

Giacomo Nocera

Audencia Business School

Giuliano Iannotta

Università Cattolica

Andrea Sironi

Bocconi University - Department of Finance

Abstract

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.

Keywords: European banking, Ownership, Governance, Performance

JEL Classification: G21, G32, G34

Suggested Citation

Nocera, Giacomo and Iannotta, Giuliano and Sironi, Andrea, Ownership Structure, Risk and Performance in the European Banking Industry. Available at SSRN: https://ssrn.com/abstract=1020306

Giacomo Nocera (Contact Author)

Audencia Business School ( email )

8 route de la Jonelière, BP 31222
Nantes Cedex 3, Cedex 3 44312
France

Giuliano Iannotta

Università Cattolica ( email )

20123 Milano
Italy

Andrea Sironi

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

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