Effect of Ownership Structure on Bank Performance and Risk in 100 Top Largest World Bank from 2005-2013 (Dissertation Sample)

Effect of Ownership Structure on Bank Performance and Risk in 100 Top Largest World Bank from 2005-2013
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ABSTRACT
This paper investigates the empirical studies establishing the effects of structures of governance and ownership among the contemporary commercial banks. It starts by the documentation of the degree bank privatization and state governance of the commercial banks. It then proceeds to the hypothetical rationale for the state ownership and the measurement of performance of both the private banks and public banks in the global financial sector. Finally, it does the assessment of the investor’s decisions to transform the ownership structure from public banks to privatization and from private bank to large state ownership. The study presents evidence of the performance indicators in the empirical models clearly showing that government-controlled banks have less efficiency compared to the privately owned banking sector. It also presents empirical evidence that state dominance of the banking industry enforces progressively more rigorous consequence on the nations with the greatest state ownership of the banking industry. On the contrary, this study shows that there is minimal evidence in the empirical information to indicate that private ownership is sufficient in transforming the competence of the banks. It shows that banks can either be under partial privatization or complete privatization. From the analysis in the research, it shows that conversion of private banks to state owned banks increases the performance of the banks in profitability and risk exposure management. There is a progressively more common results of the highest 100 ranking banks, with the state governance influencing their positions in asset base and capital accessibility despite unfavorable political factors.
TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION
Overview Of the Research
Background
Problem Definition
Aims and Objectives
Research Hypothesis
Research Questions
Rationale Of the Study
CHAPTER 2: LITERATURE REVIEW
Introduction
Definition of a Bank
Public and Private Banks
Structure of a Bank
Risk management in a bank
World Leading Banks and Risk Management
World leading banks and risk management
CHAPTER 3: RESEARCH METHODOLOGY
Content Analysis
Regression Models
Interaction Model
Robustness Test
Testing for Effects of Change in Ownership Structure
Testing for effects of post approval
Measure of Dependent and Independent Variables
Quantification of risk Exposure Index
Measure of Approval of Amendment
Measure of the Bank Size
Measure of the Bank Profitability
Measure of Bank Ownership
Data Sampling and Collection
Reasons for Selection
Weaknesses of the Sampling
Statistic Methods Applied
Summary of the Methodology
4. CHAPTER 4: ANALYSIS AND RESULTS
Descriptive statistics
Probit Regression
Hypotheses Testing
Interaction Model
Descriptive statistics of Banks Risk Exposure
Differential performance Determine Return on Asset
Performance Risk and Return on the shareholder Equity
Discussion
Profitability Ratios
Returns On total Assets (ROA)
Return on the shareholder Equity - R.O.E
Yield on the Earning Assets – YOEA
Liquidity Ratios
Cash - Deposit (CDR) Ratio
Loan - Deposit (LDR) Ratio
Loan – Asset (LAR) Ratio
Risk and Solvency Ratios
Debt to Equity (DER) Ratio
Debt - Total Asset (DTAR) Ratio
Equity Multiplier (EM) Ratio
Efficiency or Activity Ratios
Asset Utilization Ratio - AU
Income - Expense (IER) Ratio
Operating Efficiency Ratio (OE)
Lending System of these 100 chosen banks
Empirical Findings
Hypothesis Test
Test of Null Hypothesis
Interpretation
Conclusion
CONCLUSION AND RECOMMENDATION
Hypothesis Test Summary
Limitations and Challenges
The Sample Selection
Recommendation for Improvement
LIST OF FIGURES
Figure 1: Determining Return on the shareholder Equity
Figure 2: Bank Profit Margin and Efficiency
Figure 3: Bank Solvency Risk
Figure 4: Beta and Loan loss
Figure 5: Correlation Analysis Matrix
Figure 6: Returns On total Assets
Figure 7: Return on the shareholder Equity
Figure 8: Yield on the Earning Asset
Figure 9: Cash - Deposit Ratio
Figure 10: Cash – Deposit Ratio
Figure 11: Loan - Deposit Ratio
Figure 12: Loan – Asset Ratio
Figure 13: Debt - Equity Ratio
Figure 14: Debt to Total Asset (DTAR) Ratio
Figure 15: Equity Multiplier Ratio (EM)
Figure 16: Asset Utilization AU Ratio
Figure 17: Income Expense (IER) Ratio
Figure 18: Operating Efficiency
Figure 19 % increasing /decreasing in lending
LIST OF TABLES
Table 1: Descriptive Statistics
Table 2: Results for Poisson Regression
Table 3: Summary Descriptive Statistics
Table 4: Correlation Matrix
Table 5: Linear Regression
Table 6: Bank Risk Exposure
Table 7: Main Regression
Table 9: Effects of Ownership on Profitability Ratios
Table 10: Returns On total Assets
Table 11: Return on the shareholder Equity
Table 12: Yield on the Earning Asset
Table 13: Cash - Deposit (CDR) Ratio
Table 14: Loan – Deposit ratio
Table 15: Loan – Asset Ratio
Table 16: Debt to Equity Ratio
Table 17: Debt – Total Asset (DTAR) Ratio
Table 18: Equity Multiplier (EM)
Table 19 Asset Utilization
Table 20: Income Expense (IER) Ratio
Table 21: Operating Efficiency
Table 22: The Lending Pattern in Banks
Table 23: % Rise or fall in lending
Table 25: Financial ratios Summary
Table 26: Probit Regression
Table 27: 100 best BanksABBREVIATIONS
PR – Performance Risk
OS – Ownership Structure Coefficient
Rank – The bank Ranking
CE_TA – Common Equity to Total Asset
ROA – Return on Asset
ROE – Return on Equity
YOEA – Yield on the Earning Assets
CDR – Cash_Deposit
LDR – Loan - Deposit Ratio
LAR – Loan -Asset Ratio
DER – Debt – Eqiity Ratio
EM – Equity Multiplier
AU – Asset Utilization
DTAR – Debt – Total Asset
IER – Income Expense Ratio
OE – Operating Efficiency
CHAPTER 1: INTRODUCTION
Overview Of the Research
This research evaluates the link between the structure of bank governance and performance in profitability and the risk management strength. It identifies two major categories of bank ownership structures namely, private - full ownership by individual shareholders, and public-full ownership by the state (government). The study is conducted based on the performance of 100 selected banks from various parts of the globe, covering 9 years from 2005 to 2013. The 100 banks are the best performing in the global banking industry in terms of delivery of profitability (Return on Investment). It intends to establish whether the bank profitability is favored by privatization or by the public ownership and administration.
Background
The banking industry operates within a standard enterprise risk-management framework. It identifies the risks to which its operation is exposed and draw prioritized attentions. In the last few decades, banks have purely served the community in the financial institution unlike the non-financial sectors such as the insurance companies and corporate distribution points (Allen, Fulghieri & Mehran 2011, p. 59). The study of profitability addresses the functions of risk monitoring and reporting as vital for financial organizations as well as for corporate administration and mitigation of risk. With the rate of global services is rising, banks ought to acquire relevant structures in management to support global business transactions. The subject of risk monitoring and reporting has been a source of business opportunities for the financial institutions after suppression of the possible business threats and financial crisis. According to research by Bouwman and Schaeck (2011, p. 63), following the approval of interchange between private ownership and private ownership in 2007, the level of risk exposure became a financial instrument necessary for the expansion of the annual financial results.
From the stock exchange market, the list of stocks with better performance has been from a particular category of clients, the state. The prudential guideline and Basel committee regulation on risk management structure requires the public and private banks to have an enterprise risk-reporting framework. This adds transparency as well as reliability in the annual financial reporting of their results. The regulators emphasize on the communication of banks profitability and the level of exposure to financial risks (Duffie & Singleton 2012, p. 53). This is inclusive of the applicable financial instruments about the banks’ financial positions in risk and the return on investment and assets. Consequently, because public banks hold the greatest proportion of financial instruments used, it accounts for over 90% of total liabilities and asset. The banking industry would therefore prefer to transform its ownership structure to include increasing the shares of the state in order to acquire more sources of equity and reduce the dependency on debts (Albertazzi & Gambacorta 2010, p. 45).
In the banking industry, risk exposure is an appropriate tool for providing relevant information to the stakeholders and the management of the banks. Additionally, it is necessary for corporate leadership in the state owned bank sector and private sector. An analysis of the acceptable robust risk exposure reflected in the yearly financial reporting conducted by a survey among all the globally listed banks, before deciding on the ranking of the banks from which the 100 best performing banks were selected. ...