Journal of Financial Services Research

, Volume 45, Issue 2, pp 219–240 | Cite as

The Effect of Bank Ownership Concentration on Capital Adequacy, Liquidity, and Capital Stability

  • Pichaphop Chalermchatvichien
  • Seksak Jumreornvong
  • Pornsit Jiraporn
  • Manohar SinghEmail author


We explore the effects of ownership concentration on the risk-taking behavior of banks. Our analysis focuses on East Asian countries because these nations have successfully implemented the Basel standards and demonstrate a high degree of regulatory convergence. For the period from 2005 to 2009, we analyzed the relation between ownership concentration and capital adequacy (Basel II) and find that an increase in ownership concentration by one standard deviation results in an improvement in capital adequacy by 7.64 %. Although Basel III does not go into effect until 2013, we retroactively apply the standards for capital stability on our sample. We find that ownership concentration would have been a significant determinant of capital stability. While at lower levels of ownership concentration, an increase in concentrated ownership would have reduced capital stability; at higher ownership levels, greater ownership concentration would have increased capital stability. We also find that concentrated ownership improves banks’ liquidity. Further, the recent financial crisis does not appear to change the fundamental associations among ownership concentration, capital adequacy, and liquidity.


Basel III Bank ownership Capital adequacy Capital stability Financial crisis 

JEL classification

G01 G18 G21 G28 G34 G38 


  1. Aebi V, Sabato G, Schmid M (2011) Risk management, corporate governance, and bank performance in the financial crisis. J Bank Financ forthcomingGoogle Scholar
  2. Allen WA, Chan KK, Milne A, Thomas S (2010) Basel III: is the cure worse than the disease. Working paper, City University LondonGoogle Scholar
  3. Altman EI, Sabato G (2005) Effects of the New Basel capital accord on bank capital requirements for SMEs. J Financ Serv Res 28:15–42CrossRefGoogle Scholar
  4. Altonji JG, Elder TE, Taber CR (2005) Selection on observed and unobserved variables: assessing the effectiveness of Catholic schools. J Polit Econ 113:151–184CrossRefGoogle Scholar
  5. Anderson RC, Fraser DR (2000) Corporate control, bank risk taking, and the health of the banking industry. J Bank Financ 24:1383–1398CrossRefGoogle Scholar
  6. Bank for International Settlements (2010) Basel III: international framework for liquidity risk measurement, standards and monitoring. Basel Committee on Banking SupervisionGoogle Scholar
  7. Bellows J, Miguel E (2006) War and institutions: new evidence from Sierra Leone. Am Econ Rev 96:394–399CrossRefGoogle Scholar
  8. Beltratti A, Stulz R (2011) The credit crisis around the globe: why did some banks perform better? J Financ Econ forthcomingGoogle Scholar
  9. Bernanke B (1983) Nonmonetary effects of the financial crisis in the propagation of the Great Depression. Am Econ Rev 73:257–276Google Scholar
  10. Burkart M, Gromb K, Panunzi F (1997) Large shareholders, monitoring, and fiduciary duty. Q J Econ 112:693–728CrossRefGoogle Scholar
  11. Calomiris C, Mason J (2003a) Consequences of US bank distress during the depression. Am Econ Rev 93:937–947CrossRefGoogle Scholar
  12. Calomiris C, Mason J (2003b) Fundamentals, panics, and bank distress during the depression. Am Econ Rev 93:1615–1647CrossRefGoogle Scholar
  13. Caprio G, Laevan L, Levine R (2007) Governance and bank valuation. J Financ Intermed 16:584–617CrossRefGoogle Scholar
  14. Chabanel P (2011) Implementing Basel III: challenges, options & opportunities. Moody’s Analytics White Paper September 2011: 1–10Google Scholar
  15. Chari VV, Christiano LJ, Kehoe PJ (2008) Facts and myths about the financial crisis of 2008. Working paper, Federal Reserve Bank of MinneapolisGoogle Scholar
  16. De Jonghe O, Disli M, Schoors K (2011) Corporate governance, opaque bank activities, and risk/return efficiency: pre- and post-crisis evidence from Turkey. J Financ Serv Res forthcomingGoogle Scholar
  17. Demsetz H, Lehn K (1985) The structure of corporate ownership: causes and consequences. J Polit Econ 93:1155–1177CrossRefGoogle Scholar
  18. Dietrich A, Wanzenried G (2011) Determinants of bank profitability before and during the crisis: evidence from Switzerland. J Int Financ Mark Inst Money 21:307–327CrossRefGoogle Scholar
  19. Esty B (1998) The impact of contingent liability on commercial bank risk taking. J Financ Econ 47:189–218CrossRefGoogle Scholar
  20. Fahlenbrach R, Stulz R (2011) Bank CEO incentives and the credit crisis. J Financ Econ 99:11–26CrossRefGoogle Scholar
  21. Fortin R, Goldberg G, Roth G (2010) Bank risk taking at the onset of the current banking crisis. Financ Rev 45:891–913CrossRefGoogle Scholar
  22. Galai D, Masulis R (1976) The option pricing model and the risk factor of stock. J Financ Econ 3:53–81CrossRefGoogle Scholar
  23. Gorton G, Metrick A (2009) Securitized banking and the run on repo. Working paper, Yale UniversityGoogle Scholar
  24. Ivashina V, Scharfstein D (2009) Bank lending during the financial crisis of 2008. Working paper, Harvard UniversityGoogle Scholar
  25. Jensen M, Meckling W (1976) Theory of the firm: managerial behavior and agency costs, and ownership structure. J Financ Econ 3:305–360CrossRefGoogle Scholar
  26. John K, Saunders A, Senbet A (2000) A theory of bank regulation and management compensation. Rev Financ Stud 13:95–125CrossRefGoogle Scholar
  27. Kane E (1985) The gathering crisis in federal deposit insurance. MIT Press, CambridgeGoogle Scholar
  28. Laeven L, Levine R (2009) Bank governance, regulation, and risk taking. J Financ Econ 93:259–275CrossRefGoogle Scholar
  29. Nunn N, Wantchekon L (2011) The slave trade and the origins of mistrust in Africa. Am Econ Rev 101:3221–3252CrossRefGoogle Scholar
  30. Ojo M (2010) Basel III and responding to the recent financial crisis: progress made by the Basel Committee in relation to the need for increased bank capital and increased quality of loss absorbing capital. Working paper, Oxford Brookes UniversityGoogle Scholar
  31. Pathan S (2009) Strong boards, CEO power and bank risk-taking. J Bank Financ 33:1340–1350CrossRefGoogle Scholar
  32. Peni E, Vahamaa S (2011) Did good corporate governance improve bank performance during the financial crisis. J Financ Serv Res forthcomingGoogle Scholar
  33. Saunders A, Strock E, Travlos N (1990) Ownership structure, deregulation, and bank risk taking. J Finance 45:643–654CrossRefGoogle Scholar
  34. Shehzad CT, Haan JD, Scholtens B (2010) The impact of bank ownership concentration on impaired loans and capital adequacy. J Bank Financ 34:399–408CrossRefGoogle Scholar
  35. Vauhkonen J (2011) The impact of Pillar 3 disclosure requirements on bank safety. J Financ Serv Res forthcomingGoogle Scholar
  36. Went P (2010) Basel III accord: where do we go from here? Working paper, GARP Research CenterGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • Pichaphop Chalermchatvichien
    • 1
  • Seksak Jumreornvong
    • 2
  • Pornsit Jiraporn
    • 3
    • 4
  • Manohar Singh
    • 3
    Email author
  1. 1.Bank of ThailandBangkokThailand
  2. 2.Thammasat UniversityBangkokThailand
  3. 3.The Pennsylvania State University-Great ValleyMalvernUSA
  4. 4.National Institute of Development Administration (NIDA)Thammasat University, Mahidol UniversityBangkokThailand

Personalised recommendations