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

This paper examines the effect of ownership structure on bank risk-taking and performance in emerging economies using India as a case study. We use generalised method of moments (GMM) estimation technique to analyse an unbalanced panel dataset covering 217 bank-year observations from 2008 to 2011. 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. This study is likely to have implications for policymakers in undertaking regulatory reforms relating to ownership, risk management and banking sector stability.