Author(s) :

Maria Cristina Mina.

Volume/Issue :

Abstract :

The analysis uses data gathered from a sample of 81 large banks from six Latin American countries over the 2013 2017 period to examine the impact of alternative ownership models, together with the degree of ownership concentration on profitability, cost efficiency and risk management. Three main results emerge. First, after controlling for bank characteristics, country and time effects, mutual banks and state-owned banks exhibit lower profitability than privately owned banks, in spite of their lower costs. Second, public sector banks have poorer loan quality and higher insolvency risk than other types of banks while mutual banks have better loan quality and lower asset risk than both private and public sector banks. Finally, while ownership concentration does n profitability, a higher ownership concentration is associated with better loan quality, lower asset risk and lower insolvency risk. These differences, along with differences in asset composition and funding mix, indicate a different financial intermediation model for the different ownership forms

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7

KEYWORDS:

Ownership structure, performance, risk management, profitability, Latin American Countries,

INTRODUCTION & OBJECTIVES:

A firm's ownership structure may be be defined along two main dimensions. First, the degree of ownership concentration: firms may differ because their ownership is more or less dispersed. Second, the nature of the owners: given the same degree of concentration, two firms may differ if the government holds a (majority) stake in one of them; similarly, a stock firm with dispersed ownership is different from a mutual firm. Governance is the combination of processes established and executed by the directors (or the board of directors) that are reflected in the organization's structure and how it is managed and led toward achieving goals. Risk management is predicting and managing risks that could hinder the organization from reliably achieving its objectives under uncertainty. Within the Latin American banking industry different ownership structures coexist: privately owned stock banks (POBs), state-owned banks (SOBs), and mutual banks (MBs). POBs, in turn, have different degrees of ownership concentration. Although their roots are different, large MBs, SOBs, and POBs (with different ownership concentration) have typically evolved to a similar full-service banking model, thereby competing in the same markets within the same regulatory framework. Indeed, these banks are virtually indistinguishable in terms of their range of activities. The relevance of firm ownership structure has been extensively explored in the theoretical literature. As far as ownership concentration is concerned, Bearle and Means (1932) point out that the separation of ownership and control may create a conflict of interests between owners and managers. Moreover, Jensen and Meckling (1976) posit that the decreases and ownership becomes more dispersed. The argument may weaken if the pointed out by Fama (1980), the signals provided by an efficient capital market about the nature of owners, the property rights hypothesis (e.g. Alchian, 1965) suggests that private firms should perform more effciently and more profitably than both state-owned and mutual firms. In the case of state-owned firms, as Shleifer and Vishny (1997) point out, political bureaucrats have goals that are often in conflict with social welfare improvements and are dictated by political interests. In mutual firms, ownership cannot be concentrated as in the case of stock companies (Fama and Jensen, 1983a, b). This may cause inefficiency as the benefits of concentrated ownership are forgone. Moving to the empirical literature and restricting the analysis to the banking industry, briefly review previous works on relative performances concerning (i) SOBs, (ii) MBs, and (iii) ownership concentrated banks. As far as the relative performance of SOBs is concerned, Altunbas et al. (2001), focusing on the German banking industry, find little evidence to suggest that POBs are more efficient than SOBs, although the latter have slight lending relationships in Italy, comparing the interest rate charged to two sets of companies with identical credit scores which are borrowing either from SOBs or POBs, or both. She finds that SOBs tend to charge lower interest rates than POBs. By examining the profitability of a large sample of banks from both developing and developed countries, Micco et al. (2004) find that in industrial countries there is no significant difference between the Return on Assets of SOBs and that of similar POBs. Finally, Berger et al. (2005) find that SOBs in Argentina have lower long-term performance than that of POBs. The remainder of the paper is organized as follows. Section 2 presents the literature review and hypothesis development. Section 3 describes the procedure followed to gather and select the data and explains the variables associated to test the corporate-ownership-risk-performance relationship under analysis. Section 4 explains the main results, while Section 5 offers some conclusions.

DOI:

https://doi.org/10.58426/cgi.v1.i2.2019.34-53