Ownership Structure, Governance Mechanism And Risk-taking Behavior Of Banks In China

While bank risk-taking behavior has been widely researched in the financial field,the traditional researches focus on it mainly from the external views, such as capitalregulation and market discipline. After2007American financial crisis, there has been arethinking of the internal dynamics from the perspective of bank governance, and therelationship between bank governance and risk-taking behavior are becoming one of themost important topics in banking researches. In China, it is quite important to study therelationship between ownership structure, governance mechanism and bankingrisk-taking behavior, as the reform of banking ownership and corporate governance isgradually deepened since2004.This paper has studied the influences of ownership structure on risk-takingbehavior in China’s banking from the views of co-governance of shareholders andcreditors under the background of economic transition. At first, the OGR frameworkbased on the specificity of banking governance, the multiple agency conflicts in bankingand the transition background is proposed to reveal the transmission way of ownershipstructure, governance mechanism and bank risk-taking behavior. Then, the paper hasexamined the internal governance mechanism how ownership concentration and foreignstrategic investors have influences on bank risk-taking and the external governancemechanism how ownership structure interacts with capital regulation and marketdiscipline.The main innovations points of this paper are as follows:①It puts forward the OGR framework and reveals the transmission mechanism ofownership structure influencing on risk-taking behavior in China’s banking. The currentliteratures of corporate governance mainly focus on the relationship between bankgovernance and performance and pay little attention to the risk-taking behavior underthe performance, and the traditional researches on bank risk-taking are mainly based oncapital regulation and market discipline, which has neglected the internal agent problemand weaken the explanation of the bank risk behavior. This paper has studied bankrisk-taking under the multiple agency conflicts and and constructed OGR framework toreveal the transmission mechanism how ownership structure influences on bankrisk-taking behaviour which highlights the interacts of asset substitution problem andinternal governance mechanism, the transition background and the particularity of the bank governance to enrich the study of the theory of bank governance and bankrisk-taking behavior.②It confirms that foreign strategic investors are helpful to restraining the riskybehavior of banks and the effects are quite different in banks with different ownershiptype. The current researches on foreign strategic investors pay close attention to theeffect on bank performance and often get the inconsistent conclusion, but take littleconcern about the effect on risk-taking behavior and the differences in different types ofbanks. This paper empirically explores the effects of foreign strategic investors on bankrisk-taking and the significant differences among state-owned banks, joint stockcommercial banks and urban commercial banks, which has proved the validity of thepolicy on foreign strategic investors from the view of risk-taking behavior, highlightingthe differences effects among different banks, providing some references for thesupervision policy and enriching the researches of foreign strategic investors to someextent.③It reveals the interacts of bank’s ownership structure and market discipline onbank risk-taking. The current researches on market discipline tend to take the bank as ablack box, without considering the internal principal-agent problems and ownershipconcentration. Based on the views of co-governance of shareholders and creditors, thispaper has put the ownership structure and market discipline into the same framework,constructed the principal-agent model to analyze the relationship between bank risksubsidies and the creditor supervision power in the deposit insurance system, examinedthe effects of ownership concentration, state ownership, and market discipline on therisk-taking. Compared with the current literature, this study highlights the largeshareholder’s role on market discipline, confirmes the mechanism of ownershipstructure influencing bank risk behavior by the external mechanism, and reveals the twoside of state shareholder under the background of the transition by controlling riskbehavior through direct shares and encouraging the incentives to take risk with theimplicit deposit insurance system.