Banking System Control, Capital Allocation and Economy Performance

48 Pages Posted: 10 Nov 2009 Last revised: 30 Jan 2013

See all articles by Randall Morck

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

M. Deniz Yavuz

Purdue University - Krannert School of Management

Bernard Yin Yeung

National University of Singapore - Business School

Multiple version iconThere are 2 versions of this paper

Date Written: November 10, 2009

Abstract

We observe less efficient capital allocation in countries whose banking systems are more thoroughly controlled by tycoons or families. The magnitude of this effect is similar to that of state control over banking. Unlike state control, tycoon or family control also correlates with slower economic and productivity growth, greater financial instability, and worse income inequality. These findings are consistent with theories that elite-capture of a country’s financial system can embed “crony capitalism.”

Keywords: banking, ownership structure, capital allocation, economic growth, income distribution, family business, state owned enterprises, crises

JEL Classification: G01, G21, G28, G32, O15, O16

Suggested Citation

Morck, Randall K. and Yavuz, M. Deniz and Yeung, Bernard Yin, Banking System Control, Capital Allocation and Economy Performance (November 10, 2009). Available at SSRN: https://ssrn.com/abstract=1503431 or http://dx.doi.org/10.2139/ssrn.1503431

Randall K. Morck

University of Alberta - Department of Finance and Statistical Analysis ( email )

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National Bureau of Economic Research (NBER)

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European Corporate Governence Institute ( email )

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Asian Bureau of Finance and Economic Research ( email )

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M. Deniz Yavuz (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
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United States

Bernard Yin Yeung

National University of Singapore - Business School ( email )

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BIZ 1 Level 6
Singapore, 119245
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

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