Ownership Structure and Capital Structure Decision

  •  Seok Lee    


The purpose of this paper is to analyze how the capital structure decision of banking industry is related to the bank ownership structure. From the sample of post-Asian financial crisis of the Korean banking industry, 2000-2008, this study finds that the banks with higher proportion of outside shareholders tend to have greater risk-taking incentives by choosing lower capital ratios. This result suggests a policy implication that bank regulator needs to monitor risk-taking behavior and change of capital structure of the banks with higher proportion of outside shareholdings more carefully to protect them from taking excessively high risk projects. From the results of partitioned sample test, we find that this tendency gets stronger with the increase of outside shareholdings. Thus bank regulator needs to monitor much more carefully the risk-taking behavior of the banks with extremely high proportion of outside shareholdings for the safety and soundness of the banking industry. However, in the test of interaction effects, we find some evidences of the higher proportion of outside shareholding banks to pursue deliberate risk-taking by taking into consideration their nonperforming loan ratio and profitability as well.

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