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Journal of Financial Services Research

Erschienen in:

01.06.2014

The Government’s Role in Government-owned Banks

verfasst von: Chung-Hua Shen, Iftekhar Hasan, Chih-Yung Lin

Erschienen in: Journal of Financial Services Research | Ausgabe 3/2014

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Abstract

In this study, we reinvestigate the question of whether government banks are inferior to private banks. We use cross country data from 1993 to 2007 to trace the different types of government banks. These types comprise banks that acquire distressed banks, normal banks, or no banks at all. Contrary to common belief, the evidence shows that unless government banks are required to purchase a distressed bank because of political factors (the government’s role), their performances are at par with that of private banks. This fact particularly holds true in countries with poor records on political rights and governance.

Vorheriger Artikel The Benefits of Political Connection: Evidence from Individual Bank-Loan Contracts

Nächster Artikel Bank Capital and Liquidity Creation: Granger-Causality Evidence

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Cole and White (2012) discuss and analyze why commercial banks failed during the financial crisis. Similarly, Poghosyan and Čihak (2011) investigate the determinants of bank distress in Europe.

For example, Dinç (2005) presents that government banks’ increase in their lending during election years relative to private banks. Micco et al. (2007) demonstrate that during election years, government banks increase their lending and exhibit reduced returns on assets (ROA). Brown and Dinç (2005), Khwaja and Mian (2005), and Leuz and Oberholzer–Gee (2006) present similar results.

SDC is a private company selling data about merger activity, securitization, private funds, and so on.

Factiva is a database that includes Dow Jones News, Reuters, and the Wall Street Journal, among others.

For example, in 2002, the Taiwanese government encouraged government banks to consolidate other normal banks into large banks to promote operational effectiveness during their financial reform. One such bank is Taiwan Bank, a 100 % government-owned bank, which merged with Central Trust of China to establish the Financial Holding Company. See Taipei Times, July 2, 2007.

These include the Bankers Almanac, American Banker, Bank Director, and ABA Banking Journal.

We also control the bank privatization effect. For example, when government banks are privatized to become the private banks sample, we exclude them from both government and private banks sample after the privatization.

All the names of government banks and distressed banks are not reported here but are available upon request.

See website: http://www.fundinguniverse.com/company-histories/krung-thai-bank-public-company -ltd -history/.

Officials of the banking watchdog said that Hana Bank had solved the question of insolvency for the Korea Merchant Bank, its largest shareholder, by purchasing 45 billion won worth of securities and financial bonds. As for the remaining 10 billion won of the bank’s economic responsibility, the FSC decided to give time until the ongoing trial at the Seoul District Court for compensation of deposit insurance is completed. Website: http://www.accessmylibrary.com/coms2/summary_ 0286-26836864 _ITM.

See website: http://stockdata.indonesiafinancetoday.com/keyfacts/BDMN.

See website: http://finance.groups.yahoo.com/group/riskmanagers/message/1785.

If the sample periods of acquirers cover more than two M&As, then we only keep the first one to avoid overlapping.

All the target banks are private banks and are excluded from the sample of private banks prior to the acquisition.

As no merging dates for the non-acquirer government banks are indicated, the event dates are difficult to define.

For brevity, we do not show the detailed results of distressed-acquirer private banks, but they are available upon request.

Our benchmark is still the value-weighted private banks for each country.

Regarding this question, we appreciate the suggestion of a referee.

See Petersen (2009) for a detailed discussion.

In the literature, although slightly different from our study, several authors have discussed the lending behavior of banks among different institutional factors. See Qian and Strahan (2007), Bae and Goyal (2009), Haselmann et al. (2009), and Qi et al. (2010) for details.

Freedom House is an international nongovernmental organization based in Washington, D.C. that conducts research and advocates democracy, political freedom, and human rights. It publishes an annual report that assesses the degree of perceived democratic freedoms in each country, which is used in political science research. See website: http://www.freedomhouse.org/.

Considering the increasing importance of country governance, Kaufmann et al. (2007) updated their WGI. The WGI involves six dimensions of governance and covers 212 countries from 1996 to 2006. This index comprises regulatory quality, rule of law, control of corruption, political stability, absence of violence, voice and accountability, and government effectiveness.

Regarding this question, we appreciate the suggestion of a referee.

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Titel: The Government’s Role in Government-owned Banks
verfasst von: Chung-Hua Shen
Iftekhar Hasan
Chih-Yung Lin
Publikationsdatum: 01.06.2014
Verlag: Springer US
Erschienen in: Journal of Financial Services Research / Ausgabe 3/2014
Print ISSN: 0920-8550
Elektronische ISSN: 1573-0735
DOI: https://doi.org/10.1007/s10693-013-0168-0