Abstract
Purpose – This study investigates how ownership structure and bank regulations individually and interactively influence risk-taking behaviour of a bank.
Design/Methodology/Approach – Our empirical framework is based on dynamic two-step system generalised method of moments (GMM) estimation technique to analyse an unbalanced panel dataset covering 144 conventional banks from 12 Middle East and North Africa (MENA) countries.
Findings – Our 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. Overall, our 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 (e.g., capital regulations, market-oriented disclosures and official supervisory power), and offers evidence in support of ‘political/regulatory capture hypothesis’ of bank regulation. Our results also provide support for ‘global advantage hypothesis’ of bank ownership.
Design/Methodology/Approach – Our empirical framework is based on dynamic two-step system generalised method of moments (GMM) estimation technique to analyse an unbalanced panel dataset covering 144 conventional banks from 12 Middle East and North Africa (MENA) countries.
Findings – Our 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. Overall, our 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 (e.g., capital regulations, market-oriented disclosures and official supervisory power), and offers evidence in support of ‘political/regulatory capture hypothesis’ of bank regulation. Our results also provide support for ‘global advantage hypothesis’ of bank ownership.
| Original language | English |
|---|---|
| Pages (from-to) | 23-43 |
| Number of pages | 21 |
| Journal | Corporate Governance: The International Journal of Business in Society |
| Volume | 19 |
| Issue number | 1 |
| Early online date | 17 Sept 2018 |
| DOIs | |
| Publication status | Published - 4 Feb 2019 |
Keywords
- Ownership structure
- bank regulations
- bank risk-taking
- MENA countries
ASJC Scopus subject areas
- Finance
- Business, Management and Accounting (miscellaneous)