Do foreign and state banks take more risk?
-
DOIhttp://dx.doi.org/10.21511/bbs.13(4).2018.09
-
Article InfoVolume 13 2018, Issue #4, pp. 96-102
- Cited by
- 1130 Views
-
170 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This paper addresses the impact of foreign ownership, government ownership, efficiency and income diversification on the risk-taking behavior of banks in Indonesia. This research uses Z-Score to measure bank risk-taking behavior. Z-score proxies probability bank’s loss that is greater than its equity. Despite their profit, bank may suffer financial insolvency when taking too much risk. This study used a sample of 44 banks in Indonesia over the 2011–2016 period with purposive sampling method. Based on the result of the research, it can be concluded that foreign ownership can increase bank risk-taking behavior due to the barrier to entry in the form of deficiency of quality information of the borrower so that it has an impact on the increase of non-performing loan ratio. While government ownership can also increase risk-taking behavior, because banks are used by politicians to pursue political goals that cause banks to take high-risk projects with low profits. In addition, the results of this study also show that banks with low efficiency tend to increase the risk-taking behavior.
- Keywords
-
JEL Classification (Paper profile tab)E58, G21, G32
-
References19
-
Tables2
-
Figures0
-
- Table 1. Descriptive statistic
- Table 2. The impact of ownership and characteristics on bank risk-taking behavior
-
- Amidu, M., & Wolfe, S. (2013). Does Bank Competition and Diversification Lead to Greater Stability? Evidence from Emerging Markets. Review of Development Finance, 3(3), 152-166.
- Angkinand, A., & Wihlborg, C. (2010). Deposit Insurance Coverage, Ownership, and Banks’ Risk Taking in Emerging Markets. Journal of International Money and Finance, 29(2), 252-274.
- Beck, T., De Jonghe, O., & Schepens, G. (2013). Bank Competition and Stability: Cross Country Heterogeneity. Journal of Financial Intermediation, 22(2), 218-244.
- Berger, A. N., Klapper, L. F., Peria, M. S. M., & Zaidi, R. (2008). Bank Ownership Type and Banking Relationships. Journal of Financial Intermediation, 17(1), 37-62.
- Chen, M., Wu, J., Jeon, B. N., & Wang, R. (2017). Do Foreign Banks Take More Risk? Evidence from Emerging Economies. Journal of Banking and Finance, 82, 20-39.
- Dell’Ariccia, G., Friedman, E., & Marquez, R. (1999). Adverse Selection as a Barrier to Entry in the Banking Industry. The Rand Journal of Economics, 30(3), 515-534.
- Demirgüç-Kunt, A., & Huizinga, H. (2010). Bank Activity and Funding Strategies: The Impact on Risk and Returns. Journal of Financial Economics, 98(3), 626-650.
- Deyoung, R., & Roland, K. P. (2001). Product Mix and Earnings Volatility at Commercial Banks: Evidence from a Degree of Total Leverage Model. Journal of Financial Intermediation, 10(1), 54-84.
- Dong, Y., Meng, C., Firth, M., & Hou, W. (2014). Ownership Structure and Risk Taking: Comparative Evidence from Private and State Controlled Banks in China. International Review of Financial Analysis, 36, 120-130.
- Fang, Y., Hasan, I., & Marton, K. (2014). Institutional Development and Bank Stability: Evidence from Transition Countries. Journal of Banking and Finance, 39, 160-176.
- Fiordelisi, F., Marques-Ibanez, D., & Molyneux, P. (2011). Efficiency and Risk in European Banking. Journal of Banking and Finance, 35(5), 1314-1326.
- Houston, J. F., Lin, C., Lin, P., & Ma, Y. (2010). Creditor Rights, Information Sharing, and Bank Risk Taking. Journal of Financial Economics, 96(3), 485-512.
- Laeven, L., & Levine, R. (2009). Bank Governance, Regulation and Risk Taking. Journal of Financial Economics, 93(2), 259-275.
- Lee, C. C., & Hsieh, M. F. (2014). Bank Reforms, Foreign Ownership, and Financial Stability. Journal of International Money and Finance, 40, 204-224.
- Micco, A., Panizza, U., & Yañez, M. (2007). Bank Ownership and Performance: Does Politics Matter? Journal of Banking and Finance, 31(1), 219-241.
- Shaban, M., & James, G. A. (2014). The Effects of Ownership Change on Bank Performance and Risk Exposure: Evidence from Indonesia. Journal of Banking and Finance, 88, 483-497.
- Shirasu, Y. (2018). Long Term Strategic Effects of Mergers and Acquisitions in Asia Pacific Banks. Finance Research Letters, 24, 73-80.
- Shleifer, A., & Vishny, R. W. (1997). A Survey of Corporate Governance. The Journal of Finance, 52(2), 737-783.
- Stiroh, K. J. (2004). Diversification in Banking: Is Noninterest Income the Answer? Journal of Money, Credit, and Banking, 36(5), 853-882.