Ownership, risk-taking and performance of banks in emerging economies: Evidence from India

Abstract

Purpose

This paper examines the effect of ownership structure on bank risk-taking and performance in emerging economies by using India as a case study.

Design/methodology/approach

We use generalised method of moments (GMM) estimation technique to analyse an unbalanced panel data set covering 217 bank-year observations from 2008 to 2011.

Findings

Overall, our study results suggest that government ownership is positively associated with default risk and negatively related to bank profitability. Interestingly, we find foreign ownership having a positive effect on default risk and a negative effect on profitability among the listed commercial banks. The effect of ownership concentration on bank risk-taking and profitability appears to be statistically insignificant.

Originality/value

This study is among the first to consider the impact of ownership on bank risk-taking and profitability from an emerging economy perspective. It also addresses the problem of endogenous relationships among ownership, risk-taking and performance of a bank. This study is likely to have implications for policymakers in undertaking regulatory reforms relating to ownership, risk management and banking sector stability.

Citation

Haque, F. and Shahid, R. (2016), "Ownership, risk-taking and performance of banks in emerging economies: Evidence from India", Journal of Financial Economic Policy, Vol. 8 No. 3, pp. 282-297. https://doi.org/10.1108/JFEP-09-2015-0054