Research On Ownership Structure And Risk Taking Behavior For Commercial Banks In China

Since the global financial crisis of2007-2008, the risk-taking behavior of financialinstitutions, especially banking, has gained widespread concern of the academia, investors andregulators. The over-risk taking of the banking sector is considered to be an important cause ofthe financial crisis. China has a typical bank-based financial system, in which capital in theeconomy is mainly allocated by bank intermediaries. Therefore, the stability of the bankingsystem has a pivotal role to guard against and defuse the risk of the financial system, andpromotes the healthy development of the real economy.Using the panel data during2000-2010of China’s14listed banks, this paper empiricallystudies the impact of China’s unique ownership structure on commercial banks’ risk takingbehavior. The ownership structure is explained from such three aspects as the type of thecontrolling shareholder, ownership concentration and equity restriction, while the risk takinglevel is measured by the volatility of stock returns. After controlling the bank scale, market risk,board independence, rate of return on net assets and other factors, the ownership structure has asignificant impact on commercial banks’ risk taking behavior. Firstly, compared to non-centralholding banks, managers of central holding banks are in favor of a conservative asset allocationstrategy, which reduces the banks’ risk taking level. Secondly, compared to banks with lowerownership concentration degree, major shareholders of banks with higher ownershipconcentration degree tend to have higher risk aversion; they are more likely to persuademanagers to the implementation of a conservative investment strategy to reduce the overall risklevel of banks’ assets. Thirdly, the share increase of other non-controlling major shareholderspromotes banks to pursue a high rate of return, which increases the risk taking level. Furthermore,this paper uses the CAPM (Capital Asset Pricing Model) to divide the risk of commercial banksinto the systemic risk and the idiosyncratic risk. The influence of ownership structure oncommercial banks’ risk taking mainly lies in the idiosyncratic risk while having not significantrelationship with the systemic risk. This study provides a new perspective for understanding theunique characteristics of risk taking behavior of China’s listed banks, and also provides someempirical evidence support for regulators to develop scientific and rational policy to prevent therisk of the financial system.