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Ownership, regulation and bank risk-taking: evidence from the Middle East and North Africa (MENA) region

Faizul Haque (Department of Accountancy, Economics and Finance, Heriot-Watt University - Dubai Campus, Dubai, United Arab Emirates)

Corporate Governance

ISSN: 1472-0701

Article publication date: 17 September 2018

Issue publication date: 4 February 2019

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Abstract

Purpose

This study aims to investigate how ownership structure and bank regulations individually and interactively influence risk-taking behaviour of a bank.

Design/methodology/approach

This empirical framework is based on dynamic two-step system generalised method of moments estimation technique to analyse an unbalanced panel data set covering 144 conventional banks from 12 Middle East and North Africa (MENA) countries.

Findings

The estimation results suggest that foreign shareholding has an inverse relationship with bank risk-taking. In addition, official supervisory power is found to have a positive association with bank risk, and this relationship is reinforced for banks with higher ownership concentration. In addition, capital stringency increases bank risk, whereas market discipline has an opposite effect, only in countries with higher activity restrictions. Finally, the interaction between ownership concentration and activity restriction has an inverse association with bank risk-taking.

Research limitations/implications

Overall, the evidence suggests that the Basel II framework and the regulatory reform initiatives in the post-global financial crisis period do not seem to have reduced bank risk-taking in MENA countries.

Originality/value

This study contributes to the literature on the effectiveness of regulatory reform based on the three pillars of the Basel II guidance (capital regulations, market-oriented disclosures and official supervisory power), and offers evidence in support of “political/regulatory capture hypothesis” of bank regulation. The results also provide support for “global advantage hypothesis” of bank ownership.

Keywords

Acknowledgements

An initial version of this paper was presented at the Surrey-Fordham international conference on ‘Banking, Finance, Money and Institutions: The Post Crisis Era’ in 2013. The author acknowledges with thanks the comments made by the conference participants. The author is also grateful to Eddie Jones, Mustafa Caglayan and Thankom Arun for their useful comments.

Citation

Haque, F. (2019), "Ownership, regulation and bank risk-taking: evidence from the Middle East and North Africa (MENA) region", Corporate Governance, Vol. 19 No. 1, pp. 23-43. https://doi.org/10.1108/CG-07-2017-0135

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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