Ownership concentration and bank risk: international study on acquisitions

Chih Liang Liu*, Yin-Hua Yeh

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

This paper explores the effects of different types of bank ownership concentration on changes in bank risk during acquisition years. Using multi-country data from 2000 to 2006, during which market failures caused by various crises and government interventions are less influential to acquisition decisions, we collect 505 banking acquisition deals from 23 countries to examine which type of ownership concentration (such as financial intermediary, capital investor, non-financial, and state ownership) brings larger changes to an acquirer’s risk from pre-acquisition year to post-acquisition year (including non-performing loans, capital adequacy ratio, loan loss reserve, and credit rating). The empirical analyses show that acquirer banks with a concentration of shares owned by financial intermediaries and non-financial firms experience larger risk changes during acquisition years. In contrast, the risk changes of acquirer banks with a concentration of capital investors and state ownership are lower. Robustness checks from the random effect estimation, instrumental variables model, reverse causality, and different subsamples of (non-)U.S. or different levels of regulation enforcement confirm these results.

Original languageEnglish
Pages (from-to)761-808
Number of pages48
JournalEuropean Journal of Finance
Volume24
Issue number9
DOIs
StatePublished - 13 Jun 2018

Keywords

  • Merger and acquisition
  • banking–commerce relation
  • capital investor
  • financial intermediary
  • ownership structure
  • state ownership

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