Banks’ Risk-taking and State Ownership: Evidence from Asian Emerging Markets

Lee, Ai-Xin; Hooy, Chee–Wooi

doi:10.22452/mjes.vol57no1.4

Cited by 5 publications

(2 citation statements)

References 52 publications

(80 reference statements)

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“…The final sample of this study excluded banks with missing data. Following Hossain et al (2013) and Lee and Hooy (2020), the list of Asian emerging markets is collected based on the MSCI Emerging Markets Index. The Asian emerging markets under this category include China, India, Indonesia, Malaysia, Pakistan, Philippines, South Korea, Taiwan, and Thailand.…”

Section: Sample Banksmentioning

confidence: 99%

Stock Liquidity and State Ownership: Evidence from the Banking Industry of Selected Asian Emerging Markets

Lee

Hooy

2023

AJBA

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Manuscript type: Research paper Research aims: Liquidity creation is deemed important in the emerging markets banking industry. It turns out to be more challenging when subject to ownership issues, particularly state ownership. The government possesses substantial ownership in many large banks in Asian emerging markets and has a significant effect on firms’ stock liquidity through trading activity. Hence, state ownership is a key determinant of stock liquidity. This paper investigates the effect of state ownership on stock liquidity in Asian emerging markets. Design/Methodology/Approach: Using the GMM panel regression model, this study examines a sample of 209 banks in Asian emerging markets including China, India, Indonesia, Malaysia, Pakistan, Philippines, South Korea, Taiwan, and Thailand from 2009 to 2018. For the robustness test, an alternative liquidity measure is conducted. Research findings: Results show that state ownership is positively related to stock liquidity, implying that the participation of the government provides investors’ confidence and perceives these stocks as value-enhancing stocks. However, this positive effect on stock liquidity turns out to be negative when the state ownership surpassed a certain threshold. Thus, this paper finds a non-linear inverse U-shaped relationship between state ownership and stock liquidity. Further analysis also shows that large banks tend to enjoy greater liquidity compared to smaller banks. Theoretical contribution/Originality: Unlike past studies that focus on other ownership structures, this study focuses on state ownership of large banks in emerging markets. This study contributes by collectively addressing the impact of state ownership on stock liquidity, with a focus on the banking industry in the Asian emerging markets context. Practitioner/Policy implications: The findings of this study can benefit investors, policymakers, and other stakeholders to better understand the impact of state ownership on stock liquidity. There are various implications in terms of investment decisions and corporate governance policies pertaining to corporate ownership structure. Research limitation: Future studies may consider conducting sub-samples using a different threshold of state ownership. Besides, this study focuses on the banking sector and hence the results may not be generalised.

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Section: Sample Banksmentioning

confidence: 99%

Stock Liquidity and State Ownership: Evidence from the Banking Industry of Selected Asian Emerging Markets

Lee

Hooy

2023

AJBA

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“…Similarly, Battaglia and Gallo (2017) argue that banks with higher proportion of independent directors had a lower probability of default during the 2007 financial crisis. Additionally, Lee and Hooy (2020) suggest that that higher board independence lessens bank risk-taking, and that independent directors monitoring is critical even with significant government ownership and intervention. Meanwhile, there are studies that assert the connection between board independence and risk is not significant.…”

Section: Board Independencementioning

confidence: 99%

The Relationship between Board Oversight and Risk: A Review of Conventional and Islamic Banks

Mohamad¹,

Hamid²

2022

IJARAFMS

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This study discusses the empirical literature on the corporate governance and risk of conventional banks (CBs) and Islamic banks (IBs) in terms of board oversight focussing on the board of directors (BOD) characteristics and the board committees. The motivation of this review is to provide an understanding on the current state of literature in regards to how governance affect risk. The review suggests that the effects of corporate governance on risk are generally mixed. Overall, the relationship between board oversight and risk is in alignment with agency theory. This suggests that the boards are exerting their influence and oversight function on the risk management of the banks. This study finds that the literatures focus more on CBs and that research which compares the two banks type is still lacking. Additionally, studies examining IBs are mostly done with banks from specific countries or regions which might suggest that the risk profiles are region or country specific. Moreover, this review identifies the current research gap especially those that compare the corporate governance of both types of banks. The review contributes to an understanding of the importance of good governance on the management of risk and provide insights for researchers and policy makers.

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