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abstract
Article history:
Received 9 June 2008
Received in revised form
4 August 2008
Accepted 11 September 2008
Available online 3 May 2009
This paper conducts the rst empirical assessment of theories concerning risk taking by
banks, their ownership structures, and national bank regulations. We focus on conicts
between bank managers and owners over risk, and we show that bank risk taking varies
positively with the comparative power of shareholders within the corporate governance
structure of each bank. Moreover, we show that the relation between bank risk and
capital regulations, deposit insurance policies, and restrictions on bank activities
depends critically on each banks ownership structure, such that the actual sign of the
marginal effect of regulation on risk varies with ownership concentration. These
ndings show that the same regulation has different effects on bank risk taking
depending on the banks corporate governance structure.
& 2009 L. Laeven. Published by Elsevier B.V. All rights reserved.
JEL classications:
G21
G38
G18
Keywords:
Corporate governance
Bank regulation
Financial institutions
Financial risk
1. Introduction
In this paper, we analyze risk taking by banks, their
ownership structures, and national bank regulations. We
$
We received very helpful comments from Christopher James (the
referee), Stijn Claessens, Francesca Cornelli, Giovanni dellAriccia, Phil
Dybvig, Radhakrishnan Gopalan, Stuart Greenbaum, Christopher James,
Kose John, Eugene Kandel, Hamid Mehran, Don Morgan, Gianni De
Nicolo, Jose Luis Peydro, Anjan Thakor, and seminar participants at the
Bank of Israel, Harvard Business School, Indiana University, Wharton
School, the University of Minnesota, Washington University in St. Louis,
and the World Bank. We thank Ying Lin for excellent assistance. This
papers ndings, interpretations, and conclusions are entirely ours and
do not represent the views of the International Monetary Fund, its
executive directors, or the countries they represent.
Corresponding author at: International Monetary Fund, Washington,
DC 20431, USA.
E-mail address: llaeven@imf.org (L. Laeven).
0304-405X/$ - see front matter & 2009 L. Laeven. Published by Elsevier B.V. All rights reserved.
doi:10.1016/j.jneco.2008.09.003
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Table 1
Summary statistics of main regression variables.
This table reports summary statistics of the main regression variables. Sample consists of 270 banks from 48 countries, and includes the 10 largest listed
banks in the country in terms of total assets, if available. Statistics based on annual data for the year 2001, unless otherwise indicated. z-Score is the banks
return on assets plus the capital asset ratio divided by the standard deviation of asset returns over the period 19962001. s(ROA) is the volatility of the
banks return on assets over the period 19962001. Equity volatility is the volatility of the equity returns of the bank, computed using weekly data over the
period 19992001. Earnings volatility is the average standard deviation of the ratio of total earnings before taxes and loan loss provisions to average total
assets over the period 19962001. CF is the cash ow rights of the largest shareholder of the bank. Large owner on mgt board takes a value of one if a large
shareholder has a seat on the management board of the company, and zero otherwise. Managerial ownership equals the total cash ow rights of senior
management. Revenue growth is the growth in total revenues of the bank over the year 2001. Market share is the banks share in total deposits in the
country. NYSE takes a value of one if the bank is listed or has an American Depository Receipt on the NYSE, and zero otherwise. Size is the banks log of total
assets. Loan loss provision ratio is the ratio of the banks loan loss provisions to net interest income. Liquidity ratio is the banks liquid assets to liquid
liabilities. Per capita income is the log of gross domestic product (GDP) per capita of the country. Rights is an index of anti-director rights. Capital
requirements is the minimum capital asset ratio requirement. Capital stringency is an index of capital regulation. Restrict is an index of activity restrictions.
DI takes a value of one if the country has explicit deposit insurance, and zero otherwise. Enforce is an index of enforcement of contracts. M&A is the
percentage of traded companies listed on the countrys stock exchange that have been targeted in completed mergers or acquisitions deals during the
period 19902000. GDP volatility is the standard deviation of the logarithm of real annual GDP growth over the period 19962001.
Variable
Number of banks
Mean
Standard deviation
Minimum
Maximum
Bank level
z-Score
s(ROA)
Equity volatility
Earnings volatility
CF
Large owner on mgt board
Managerial ownership
Revenue growth
Market share
NYSE
Size
Loan loss provision ratio
Liquidity ratio
270
270
203
246
270
270
266
251
234
270
251
243
240
2.88
0.01
0.45
0.83
0.24
0.31
0.06
0.02
0.14
0.13
16.20
0.23
0.04
0.96
0.03
0.36
1.38
0.25
0.46
0.14
0.24
0.22
0.33
2.13
0.33
0.05
1.56
0.00
0.03
0.03
0.00
0.00
0.00
0.86
0.00
0.00
10.94
2.56
0.00
5.14
0.46
4.50
12.17
1.00
1.00
0.68
1.87
1.84
1.00
20.77
2.64
0.50
Country level
Per capita income
Rights
Capital requirements
Capital stringency
Restrict
DI
Enforce
M&A
GDP volatility
48
48
48
41
41
47
47
44
47
8.79
2.98
8.69
3.12
9.02
0.79
7.13
23.90
0.03
1.49
1.31
1.23
1.25
2.40
0.41
2.15
18.65
0.02
5.54
0.00
8.00
0.00
5.00
0.00
3.55
0.00
0.00
10.70
5.00
12.00
5.00
14.00
1.00
9.99
65.63
0.12
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Table 2
Correlation matrix of main regression variables.
This table reports the correlations between the main regression variables. Sample consists of 270 listed banks from 48 countries, and includes the 10
largest listed banks in the country in terms of total assets, if available. Statistics based on annual data for the year 2001, unless otherwise indicated. z-Score
is the banks return on assets plus the capital asset ratio divided by the standard deviation of asset returns over the period 19962001. s(ROA) is the
volatility of the banks return on assets over the period 19962001. Equity volatility is the volatility of the equity returns of the bank, computed using
weekly data over the period 19992001. Earnings volatility is the average standard deviation of the ratio of total earnings before taxes and loan loss
provisions to average total assets over the period 19962001. CF is cash ow rights of the largest shareholder of the bank. Revenue growth is the growth in
total revenues of the bank over the year 2001. Large owner on mgt board takes a value of one if a large shareholder has a seat on the management board of
the company, and zero otherwise. Managerial ownership equals the total cash ow rights of senior management. Per capita income is the log of gross
domestic product (GDP) per capita. Rights is an index of anti-director rights. Capital requirements is the minimum capital asset ratio requirement. Capital
stringency is an index of capital regulation. Restrict is an index of activity restrictions. DI takes a value of one if the country has explicit deposit insurance,
and zero otherwise. p-values denoting the signicance level of each correlation coefcient are in parentheses. *, **, and *** indicate signicance at the 10%,
5%, and 1% levels, respectively.
Variable
Equity
volatility
Earnings
volatility
CF
Revenue
growth
Large owner
on mgt board
Managerial
ownership
Per capita
income
Rights
Capital
requirements
Capital
stringency
Restrict
DI
z-Score
Equity
volatility
Earnings
volatility
CF
Revenue
growth
Large owner
on mgt board
0.319***
(0.000)
0.682*** 0.239***
(0.000)
(0.001)
0.373***
0.348*** 0.209***
(0.000)
(0.003)
(0.000)
0.029
0.013
0.309***
0.127**
(0.652)
(0.864)
(0.000)
(0.045)
0.177**
0.175***
0.377***
0.075
0.214***
(0.000)
(0.012)
(0.006)
(0.000)
(0.234)
***
***
0.056
0.296
0.060
0.056
0.237
(0.364)
(0.001)
(0.383)
(0.000)
(0.351)
0.327*** 0.252*** 0.368*** 0.252*** 0.191***
(0.000)
(0.000)
(0.000)
(0.000)
(0.002)
0.145** 0.167*** 0.258*** 0.052
0.172***
(0.005)
(0.039)
(0.009)
(0.000)
(0.414)
0.026
0.101*
0.069
0.070
0.161**
(0.253)
(0.022)
(0.688)
(0.097)
(0.277)
0.102
0.059
0.101
0.038
0.122*
(0.119)
(0.425)
(0.143)
(0.557)
(0.071)
0.295***
0.161**
0.075
0.312*** 0.333***
(0.000)
(0.000)
(0.000)
(0.013)
(0.268)
**
**
0.072
0.130
0.012
0.038
0.130
(0.034)
(0.307)
(0.043)
(0.847)
(0.551)
0.305***
(0.000)
0.335***
(0.000)
0.125**
(0.040)
0.295***
(0.000)
0.090
(0.169)
0.315***
(0.000)
0.067
(0.271)
0.215***
(0.000)
0.033
(0.594)
0.264***
(0.000)
0.106
(0.107)
0.108
(0.100)
0.076
(0.220)
Rights
0.125**
(0.040)
0.276*** 0.210***
(0.000)
(0.001)
0.075
0.071
(0.249)
(0.274)
0.274*** 0.126**
(0.000)
(0.054)
0.263*** 0.119*
(0.000)
(0.052)
Capital
Capital
Restrict
requirements stringency
0.088
(0.178)
0.168***
(0.010)
0.156**
(0.010)
0.221***
(0.001)
0.398***
(0.000)
0.165**
(0.011)
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Table 3
Bank stability, ownership, and bank supervision.
This table presents regression results of indicators of bank risk on bank governance and regulation variables. Sample consists of 251 listed banks from
46 countries, and includes the 10 largest listed banks in the country in terms of total assets, if available. Regression variables are computed using annual
bank level data for the year 2001, unless otherwise indicated. Dependent variable is z-score, computed as the banks return on assets plus the capital asset
ratio divided by the standard deviation of asset returns over the period 19962001, unless otherwise noted. Dependent variable in Regression 5 is Equity
volatility computed as the average standard deviation of the banks equity returns using weekly stock return data over the period 19992001. Dependent
variable in Regression 6 is Earnings volatility computed as the average standard deviation of the ratio of total earnings before taxes and loan loss provisions
to average total assets over the period 19962001. Dependent variable in Regression 7 is z-score, computed as before but over the period 20022004.
Revenue growth is the banks average growth in total revenues during the last year. CF is the fraction of the banks ultimate cash ow rights held by the
large owner (zero if no large owner). We use 10% as the criteria for control. Per capita income is the log of gross domestic product per capita of the country.
Rights is an index of anti-director rights for the country. Capital requirements is the minimum capital asset ratio requirement. Capital stringency is an index
of capital regulation. Restrict is an index of activity restrictions. DI takes a value of one if the country has explicit deposit insurance, and zero otherwise.
Enforce is a country index of enforcement of contracts. Concentration is the ve-bank concentration ratio in terms of total assets. M&A is the percentage of
companies listed on the countrys stock exchange that have been targeted in completed mergers or acquisitions deals during the period 19902000. Size is
the log of total assets. Loan loss provision is the ratio of loan loss provisions to net interest income. Liquidity is the ratio of the banks liquid assets to liquid
liabilities. Large owner on mgt board takes a value of one if a large shareholder has a seat on the management board of the company, and zero otherwise.
Managerial ownership equals the total cash ow rights of senior management. Regressions are estimated using ordinary least squares, except Regression 4
which is estimated using instrumental variables. Regression 2 includes country xed effects. As instrument for CF in Regression 4 we use the average cash
ow rights of other banks in the country. In Regression 4 we exclude countries with one bank. For Regression 4 we also include the p-values of the
Hausman test of endogeneity and the F-test of excluded instruments. In addition we report the partial R2 of excluded instruments. The Hausman test is
based on regressions that do not control for clustering. Standard errors that control for clustering at the country level are reported in parentheses. *, **, and
*** indicate signicance at the 10%, 5%, and 1% levels, respectively.
z-Score
Variable
Revenue growth
CF
(1)
Fixed
effects
(2)
0.075
0.261
(0.512) (0.348)
1.406*** 0.504*
(0.415) (0.293)
Per capita
income
(3)
Instrumental
variables
(4)
Equity
volatility
(5)
Earnings
volatility
(6)
z-Score
(0204)
(7)
Country
level
(8)
Bank
level
(9)
Board and
management
(10)
0.232
(0.507)
1.180***
(0.379)
0.161***
(0.051)
0.434
(0.430)
3.484***
(1.088)
0.059
(0.075)
0.065
(0.114)
0.222**
(0.095)
0.058**
(0.023)
1.446
(1.125)
1.801**
(0.870)
0.250***
(0.069)
0.593
(0.476)
0.706*
(0.357)
0.087
(0.064)
0.165
(0.356)
0.989***
(0.349)
0.201***
(0.055)
0.067
(0.060)
0.171**
(0.068)
0.053
(0.069)
0.118***
(0.034)
0.630***
(0.216)
0.174
(0.289)
0.850**
(0.408)
0.404*
(0.222)
0.115*
(0.064)
0.202**
(0.090)
0.043
(0.077)
0.085**
(0.036)
0.543**
(0.211)
0.042
(0.126)
0.409
(0.538)
0.000
(0.006)
0.104*
(0.054)
0.083
(0.158)
0.097
(1.071)
0.125
(0.287)
0.913**
(0.399)
0.413*
(0.206)
0.091
(0.062)
0.185*
(0.101)
0.050
(0.078)
0.094**
(0.040)
0.568***
(0.204)
0.046
(0.121)
0.370
(0.557)
0.000
(0.006)
0.098*
(0.050)
0.036
(0.210)
0.724
(1.217)
0.003
(0.237)
0.363
(0.703)
Rights
Capital requirements
Capital stringency
Restrict
DI
Enforce
Concentration
M&A
Size
Loan loss provision
Liquidity
Large owner on mgt board
Managerial ownership
Hausman test of
endogeneity (p-value)
Partial R2 of excluded
instruments
F-test of excluded
instruments
Number of countries
Number of observations
R2
0.000***
0.151
0.000***
46
251
0.14
46
251
0.03
46
251
0.19
43
248
41
190
0.08
46
234
0.29
39
171
0.10
40
219
0.34
37
193
0.36
37
189
0.37
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Table 4
Interactions between ownership and banking regulation.
This table presents regression results of bank risk on bank governance and regulation variables, including interactions between ownership and
regulation variables. The sample consists of 219 banks from 40 countries, and includes the 10 largest listed banks in the country in terms of total assets, if
available. Regression variables are computed using annual bank level data for the year 2001, unless otherwise indicated. Dependent variable in
Regressions 15 is z-score, computed as the banks return on assets plus the capital asset ratio divided by the standard deviation of asset returns over the
period 19962001. Dependent variable in Regression 6 is volatility in ROA, measured as the standard deviation of the banks return on assets over the
period 19962001. Revenue growth is the banks average growth in total revenues over the year 2001. CF is the fraction of ultimate cash ow rights held by
the banks largest owner (zero if no large owner). We use 10% as the criteria for control. Per capita income is the log of gross domestic product per capita of
the country. Rights is an index of anti-director rights for the country. Capital requirements is the minimum capital asset ratio requirement. Capital
stringency is an index of capital regulation. Restrict is an index of activity restrictions. DI takes a value of one if the country has explicit deposit insurance,
and zero otherwise. Regressions are estimated using ordinary least squares with clustering at the country level. Standard errors are reported in
parentheses. *, **, and *** indicate signicance at the 10%, 5%, and 1% levels, respectively.
s(ROA)
Variable
Revenue growth
CF
Per capita income
Rights
Capital requirements
Capital stringency
Restrict
DI
CF * capital requirements
(1)
(2)
(3)
(4)
(5)
(6)
0.183
(0.374)
0.555
(2.658)
0.204***
(0.058)
0.071
(0.063)
0.221*
(0.117)
0.052
(0.070)
0.118***
(0.034)
0.630***
(0.218)
0.185
(0.316)
0.261
(0.292)
0.807
(0.516)
0.193***
(0.053)
0.047
(0.059)
0.154**
(0.065)
0.219**
(0.085)
0.123***
(0.038)
0.704**
(0.261)
0.311
(0.293)
1.009
(0.863)
0.185***
(0.057)
0.066
(0.061)
0.152**
(0.066)
0.045
(0.065)
0.060
(0.038)
0.613***
(0.209)
0.156
(0.339)
0.468
(0.287)
0.192***
(0.051)
0.052
(0.061)
0.151**
(0.069)
0.057
(0.064)
0.123***
(0.033)
0.297
(0.195)
1.688***
(0.453)
0.363
(0.277)
5.247**
(2.277)
0.176***
(0.053)
0.044
(0.061)
0.183*
(0.101)
0.154**
(0.071)
0.078*
(0.039)
0.315
(0.194)
0.224
(0.263)
0.383**
(0.168)
0.187**
(0.079)
1.764***
(0.383)
0.011**
(0.005)
0.074
(0.064)
0.003**
(0.001)
0.001
(0.002)
0.002
(0.003)
0.005*
(0.003)
0.001
(0.002)
0.000
(0.006)
0.020*
(0.011)
0.022*
(0.012)
0.017**
(0.007)
0.063**
(0.030)
40
219
0.36
40
219
0.40
40
219
0.45
0.607***
(0.186)
CF * capital stringency
0.218**
(0.091)
CF * restrict
CF * DI
Number of countries
Number of observations
R2
40
219
0.34
40
219
0.38
40
219
0.36
However, the interaction term CF * restrict enters negatively and signicantly in Regressions 3 and 5. When a
bank has a large owner, activity restrictions boost risk. For
instance, the estimates in Table 4, Regression 3 suggest
that bank risk rises by almost 0.3 standard deviations if
there is a one standard deviation increase in restrict (2.40)
and if the bank has an owner where CF equals 50%. As
further support, consider the Column (6) regression in
which the dependent variable is the volatility of bank
assets. When simply focusing on asset risk, the results
conrm that restricting banking activities only tends
to boost the riskiness of bank assets when there is a
sufciently strong owner as measured by CF.
The evidence on deposit insurance further emphasizes
that ignoring the interactions between national regulations and the ownership structure of individual banks
leads to awed conclusions about the impact of regulations on bank risk. In particular, explicit deposit insurance
has very different implications for the risk taking behavior
of a widely held bank relative to a bank with a majority
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Table 5
Bank risk and valuation.
This table presents instrumental variables regression results of bank risk on bank valuation, bank governance, and regulation variables, including
interactions between ownership and regulation variables. The sample consists of 200 banks from 38 countries, and includes the 10 largest listed banks in
the country in terms of total assets, if available. Regression variables are computed using annual bank level data for the year 2001, unless otherwise
indicated. Dependent variable in Regressions 13 is the banks z-score, computed as the banks return on assets plus the capital asset ratio divided by the
standard deviation of asset returns over the period 19962001. Dependent variable in Regression 4 is the banks volatility of ROA, measured as the
standard deviation of return on assets over the period 19962001. Tobins q is the banks market value of equity plus the book value of liabilities divided by
the book value of assets. Revenue growth is the banks average growth in total revenues during the year 2001. CF is the fraction of the banks ultimate cash
ow rights held by the banks largest owner (zero if there is no large owner). We use 10% as the criteria for control. Per capita income is the log of gross
domestic product per capita. Rights is an index of anti-director rights for the country. Capital requirements is the minimum capital asset ratio requirement.
Capital stringency is an index of capital regulation. Restrict is an index of activity restrictions. DI takes a value of one if the country has explicit deposit
insurance, and zero otherwise. Regressions are estimated using instrumental variables with clustering at the country level. As instruments for Tobins q
we use the banks market share in total deposits, a dummy variable that indicates whether the bank is listed or has an American Depository Receipt traded
on the NYSE, and an index of entry regulation for the country. We report both the rst- and second-stage regression results. We also include the p-value of
the F-test of excluded instruments, the p-value of the overidentication test of excluded instruments, and the partial R2 of excluded instruments. Standard
errors are in parentheses. *, **, and *** indicate signicance at the 10%, 5%, and 1% levels, respectively.
(1)
(2)
(3)
(4)
s(ROA)
Second-stage: z-score
Tobins q
Revenue growth
CF
Per capita income
1.083
(3.707)
0.212
(0.344)
0.853***
(0.319)
0.282***
(0.108)
1.202
(3.627)
0.342
(0.306)
2.147
(2.553)
0.258**
(0.115)
0.910
(3.608)
0.443
(0.279)
5.554**
(2.157)
0.219*
(0.123)
0.043
(0.097)
0.009
(0.006)
0.091
(0.074)
0.004
(0.003)
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Table 5 (continued )
(1)
(2)
(3)
(4)
s(ROA)
Rights
Capital requirements
Capital stringency
Restrict
DI
0.114
(0.104)
0.230**
(0.093)
0.021
(0.078)
0.105***
(0.038)
0.572***
(0.218)
0.091
(0.107)
0.240
(0.150)
0.183*
(0.100)
0.116***
(0.040)
0.632**
(0.256)
0.162
(0.320)
0.566***
(0.195)
0.081
(0.105)
0.224
(0.144)
0.133
(0.082)
0.070*
(0.039)
0.306
(0.192)
0.262
(0.277)
0.382***
(0.147)
0.200**
(0.101)
1.483***
(0.439)
0.001
(0.002)
0.002
(0.004)
0.006
(0.004)
0.001
(0.002)
0.000
(0.006)
0.020*
(0.012)
0.028**
(0.014)
0.018**
(0.007)
0.056*
(0.030)
0.003
(0.014)
0.007
(0.016)
0.008*
(0.004)
0.011***
(0.004)
0.002
(0.004)
0.002
(0.005)
0.000
(0.002)
0.011
(0.015)
0.002
(0.014)
0.121
(0.164)
0.008*
(0.005)
0.012***
(0.003)
0.005
(0.005)
0.002
(0.005)
0.000
(0.002)
0.011
(0.015)
0.014
(0.018)
0.000
(0.012)
0.010
(0.014)
0.042***
(0.011)
0.004
(0.005)
0.010
(0.014)
0.042***
(0.011)
0.004
(0.005)
0.005
(0.014)
0.014
(0.205)
0.010**
(0.005)
0.012***
(0.003)
0.005
(0.006)
0.004
(0.005)
0.001
(0.002)
0.005
(0.016)
0.008
(0.020)
0.007
(0.012)
0.006
(0.006)
0.069
(0.052)
0.010
(0.014)
0.043***
(0.011)
0.003
(0.005)
0.005
(0.014)
0.014
(0.205)
0.010**
(0.005)
0.012***
(0.003)
0.005
(0.006)
0.004
(0.005)
0.001
(0.002)
0.005
(0.016)
0.008
(0.020)
0.007
(0.012)
0.006
(0.006)
0.069
(0.052)
0.010
(0.014)
0.043***
(0.011)
0.003
(0.005)
0.096
0.002***
0.908
38
200
0.098
0.001***
0.864
38
200
0.098
0.002***
0.783
38
200
0.098
0.002***
0.524
38
200
CF * capital requirements
CF * capital stringency
CF * restrict
CF * DI
First stage: Tobins q
Revenue growth
CF
Per capita income
Rights
Capital requirements
Capital stringency
Restrict
DI
CF * Capital requirements
CF * Capital stringency
CF * Restrict
CF * DI
Market share
NYSE
Entry restrictions
Partial R2 of excluded instruments
F-test of excluded instruments
Overidentication test (p-value)
Number of countries
Number of observations
ARTICLE IN PRESS
L. Laeven, R. Levine / Journal of Financial Economics 93 (2009) 259275
273
6. Conclusions
In this paper, we conduct the rst empirical assessment of theories concerning risk taking by banks, their
ownership structures, and national bank regulations.
Theory highlights the potential conicts between bank
managers and owners over bank risk taking and stresses
that the same bank regulation has different effects on
bank risk taking depending on the comparative power of
shareholders in the governance structure of each bank.
Besides assessing theories from corporate nance and
banking, this analysis is crucial from a public policy
perspective because bank risk taking affects economic
fragility, business-cycle uctuations, and economic
growth.
We nd that banks with more powerful owners tend to
take greater risks. This is consistent with theories
predicting that equity holders have stronger incentives
to increase risk than nonshareholding managers and debt
holders and that large owners with substantial cash ows
have the power and incentives to induce the banks
managers to increase risk taking.
Furthermore, the impact of bank regulations on bank
risk depends critically on each banks ownership structure. The effect of the same regulation on a banks risk
taking can be positive or negative depending on the banks
ownership structure. Consistent with theory, we nd that
ignoring ownership structure leads to incomplete and
sometimes erroneous conclusions about the impact of
capital regulations, deposit insurance, and activity restrictions on bank risk taking.
Appendix A
Table A1 lists the averages of key variables for each
countrys banks.
Table A1
Bank risk, ownership, and regulations by country.
This table reports country averages of the main regression variables. Sample consists of 270 listed banks from 48 countries. Statistics based on annual
data for the year 2001, unless otherwise indicated. z-Score is the banks return on assets plus the capital asset ratio divided by the standard deviation of
asset returns over the period 19962001. Equity volatility is the volatility of the equity returns of the bank, computed using weekly data over the period
19992001. Earnings volatility is the average standard deviation of the ratio of total earnings before taxes and loan loss provisions to average total assets
over the period 19962001. CF is cash ow rights of the largest shareholder of the bank. Large owner on mgt board is a dummy variable that takes a value of
one if a large shareholder has a seat on the management board of the company, and zero otherwise. Managerial ownership equals the total cash ow rights
of senior management. Rights is an index of anti-director rights. Capital requirements is the minimum capital asset ratio requirement. Capital stringency is
an index of capital regulation. Restrict is an index of activity restrictions. DI is a dummy variable that takes a value of one if the country has explicit deposit
insurance, and zero otherwise. Number of banks is the number of sampled banks for a given country. N.a. denotes not available.
Country
Argentina
Australia
Austria
Belgium
zScore
Equity
volatility
Earnings
volatility
3.47
3.54
4.04
3.20
0.56
0.23
0.20
0.33
0.65
0.27
0.05
0.18
1.00
0.00
0.00
0.00
Managerial
ownership
Rights
Capital
requirements
Capital
stringency
0.00
0.00
0.00
0.00
4
4
2
0
11.5
8
8
8
3
3
5
4
Restrict DI
8.75
8
5
9
1
0
1
1
Number of
banks
1
9
3
1
ARTICLE IN PRESS
274
Table A1 (continued )
Country
Brazil
Canada
Chile
Colombia
Denmark
Ecuador
Egypt
Finland
France
Germany
Greece
Hong Kong
India
Indonesia
Ireland
Israel
Italy
Japan
Jordan
Kenya
Korea,
Republic of
Malaysia
Mexico
Netherlands
Nigeria
Norway
Pakistan
Peru
Philippines
Portugal
Singapore
South Africa
Spain
Sri Lanka
Sweden
Switzerland
Taiwan
Thailand
Turkey
United
Kingdom
Uruguay
United States
Venezuela
Zimbabwe
Total
zScore
Equity
volatility
Earnings
volatility
Managerial
ownership
Rights
Capital
requirements
Capital
stringency
2.74
3.80
3.18
2.67
3.32
2.89
3.14
2.94
3.11
3.12
2.60
3.06
2.52
1.00
3.21
3.34
3.05
2.00
3.16
2.33
1.61
0.71
0.31
0.40
0.39
0.19
n.a.
0.44
0.27
0.28
0.40
0.56
0.43
n.a.
0.66
0.37
0.93
0.36
0.60
n.a.
0.41
0.76
1.08
0.19
0.34
1.59
0.33
1.52
0.49
0.31
0.15
0.18
1.03
0.42
0.85
5.36
0.40
0.31
0.28
0.52
0.51
1.63
1.20
0.23
0.00
0.24
0.32
0.15
0.52
0.19
0.36
0.40
0.32
0.33
0.35
0.31
0.64
0.00
0.41
0.13
0.11
0.23
0.18
0.26
2.28
3.01
3.40
2.51
3.43
2.31
3.09
3.16
3.54
3.49
2.54
3.52
3.14
3.28
3.60
3.48
0.37
1.64
3.64
0.53
0.67
0.32
n.a.
0.26
0.31
0.86
0.51
0.25
0.49
0.40
0.26
0.44
0.30
0.24
0.49
0.62
0.95
0.40
0.54
0.60
0.20
1.54
0.25
0.93
0.87
0.89
0.23
0.31
1.33
0.23
0.41
0.28
0.36
0.17
1.58
3.57
0.21
3.14
2.98
2.80
2.77
2.88
n.a.
0.42
0.70
n.a.
0.45
0.45
0.46
1.64
2.08
0.83
0.80
0.00
0.75
0.40
0.00
1.00
0.86
0.00
0.00
0.20
0.88
1.00
1.00
1.00
0.00
0.29
0.00
0.00
0.57
0.25
0.30
0.16
0.00
0.23
0.00
0.00
0.17
0.00
0.00
0.00
0.00
0.02
0.18
0.00
0.09
0.00
0.03
0.00
0.00
0.13
0.02
0.01
3
5
5
3
2
2
2
3
3
1
2
5
5
2
4
3
1
4
1
3
2
11
8
8
9
8
9
10
8
8
8
8
10
8
8
8
9
8
8
12
8
8
5
4
3
n.a.
2
n.a.
3
4
2
1
3
n.a.
3
5
1
3
4
4
5
4
3
10
7
11
n.a.
8
n.a.
13
7
6
5
9
n.a.
10
14
8
13
10
13
11
10
9
1
1
1
1
1
1
0
1
1
1
1
1
1
1
1
0
1
1
1
1
1
5
7
4
5
10
5
7
2
6
5
8
7
1
6
6
7
10
5
7
4
10
0.30
0.58
0.17
0.15
0.05
0.49
0.55
0.26
0.18
0.27
0.15
0.18
0.14
0.09
0.23
0.15
0.45
0.53
0.02
0.33
1.00
0.00
0.14
0.11
0.67
0.00
0.22
0.17
0.50
0.00
0.20
0.40
0.00
0.00
0.38
1.00
0.30
0.00
0.11
0.58
0.00
0.01
0.00
0.23
0.06
0.23
0.16
0.27
0.00
0.00
0.00
0.02
0.14
0.00
0.10
0.20
0.00
4
1
2
3
4
5
3
3
3
4
5
4
3
3
2
3
2
2
5
8
8
8
8
8
8
9
10
8
12
8
8
8
8
8
8
8.5
8
8
3
4
3
5
n.a.
n.a.
3
1
3
1
4
4
0
3
3
2
4
1
3
10
12
6
9
n.a.
n.a.
8
7
9
8
8
7
7
9
5
12
9
12
5
0
1
1
1
1
0
1
0
1
0
1
1
0
1
1
0
1
1
1
6
1
2
7
9
6
3
9
6
2
10
10
5
3
5
8
6
10
6
0.00
0.00
0.32
0.06
0.24
0.00
0.00
0.33
0.00
0.31
0.00
0.01
0.24
0.00
0.06
2
5
1
3
3.08
10
8
12
10
8.52
n.a.
4
3
n.a.
3.08
n.a.
12
10
n.a.
9.16
n.a.
1
1
0
0.78
1
10
3
1
270
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