Ownership Structure and Bank Risk: The Effects of Crisis, Market Discipline and Regulatory Pressure

Networks Financial Institute Working Paper Series 2108-WP-03

41 Pages Posted: 31 Mar 2018 Last revised: 30 Jul 2019

See all articles by Dung Tran

Dung Tran

Banking University Ho Chi Minh city; IPAG Business School

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Reza Houston

Indiana State University - Scott College of Business

Date Written: March 27, 2018

Abstract

Using a large panel of US BHC over the 2001:Q1-2015:Q4, we investigate the risk-taking behaviors of banks within a comparison perspective – between public and private banks – where there exists substantial differences of asymmetry information and agency problems. We document evidence of greater stability of public banks versus their private peers. However, public banks become riskier than private banks during the last crisis. These findings suggest a mixed evidence of risk-taking mitigating role of listing status. Regulatory pressure is effective in limiting risk taking by undercapitalized public banks before, but not during the crisis, casting doubt the effectiveness of regulators during the turmoil times. Public banks with high franchise value expose to risk less than others during the crisis. Debtholders discipline is ineffective in curbing the risk-taking behavior of banks. Our study is of interest for regulators, policymakers who are in search of improving bank risk-taking behavior.

Keywords: bank listing status; risk taking; crisis; market discipline; regulatory pressure

JEL Classification: G21, G28, G34, G38

Suggested Citation

Tran, Dung and Hassan, M. Kabir and Houston, Reza, Ownership Structure and Bank Risk: The Effects of Crisis, Market Discipline and Regulatory Pressure (March 27, 2018). Networks Financial Institute Working Paper Series 2108-WP-03, Available at SSRN: https://ssrn.com/abstract=3150353 or http://dx.doi.org/10.2139/ssrn.3150353

Dung Tran (Contact Author)

Banking University Ho Chi Minh city ( email )

36 Ton That Dam
District 1
Ho Chi Minh
Vietnam

HOME PAGE: http://https://sites.google.com/buh.edu.vn/dungtran/

IPAG Business School ( email )

184 BD Saint Germain
Paris, 75006
France

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Reza Houston

Indiana State University - Scott College of Business ( email )

800 Sycamore Street
Terre Haute, IN 47809
United States

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