Post on 07-May-2023
International Conference On Applied Economics – ICOAE 2010 11
OWNERSHIP AND PERFORMANCE IN THE GREEK BANKING SECTOR
ANTONIADIS I.1 - LAZARIDES T.
2 - SARRIANIDES N.
3
Abstract
Banks hold a central role in the economic growth of a country. The need of sound corporate governance system for banks is therefore
crucial, as banking industry is characterized by greater opaqueness and regulation. This paper researches the effect of ownership in
performance-profitability of Greek Banks. More specifically listed in the Athens Stock Exchange market banks are examined during
the period 2000-2004. Two measures of performance – profitability are used namely return on assets and on equity and the influence
that ownership as the percentage of the large shareholder has on them, is measured, with the use of unbalanced panel data models.
Our results show the existence of a statistically significant nonlinear relationship between ownership and performance, supporting the
notion that agency problem in banks is different compared to other firms.
JEL codes: G300, G380
Keywords: Corporate Governance, Ownership, Banks, Greece
1 Introduction
Corporate governance has been one of the most discussed issues during the last decade the importance of which has been
emphasized by a number of financial crises during the last decade. Given the importance of banks in financing investments,
development and productivity growth into different sectors of a country‘s economy, and additionally the role they have in the
governance of other corporations [Levine, 2004], banks governance becomes a critical issue. The recent financial crisis due to the
meltdown in the sub-prime markets in the United States that triggered a world financial crisis, and the ongoing liquidity difficulties in
banks across Europe brings corporate governance mechanisms of banks again in the spotlight as poor governance of firms can be
crucial in periods of crises [Mitton, 2002] as the one we are currently dealing with.
Despite the influential position that banks hold in the financial system, little attention has been paid to the effect that governance
mechanism have on their operation, compared with the rest sectors of the economy. However banks‘ governance is different [Levine,
2003], compared to other corporation for two major reasons: first lower levels of transparency and secondly higher levels of
government regulation compared to the rest services, commercial and manufacturing industries, posing limitations to both the
operation and the ownership structure of banks. State presence is also higher than other sectors through the existence of state owned
banks notwithstanding the recent trend for privatizations around the world. Moreover national regulation is supplemented by an
extensive array of international rules and regulations posed by international agencies and treaties safeguarding existing national
regulations.
The purpose of this paper is to shed light in the relationship between ownership and performance-profitability in the banking
sector. The role of ownership structure as a mechanism for reducing agency costs and hence improving performance is put in the test.
Heavy regulation and ownership structure of banks dictate that banks should be examined in a different fashion and separately from
other corporations [Macey & O‘Hara 2003]. This paper adds to the present literature in the sense that to the best of our knowledge
there has been no study investigating the existence of a nonlinear relationship between large shareholders‘ ownership and
performance in the Greek banking industry for the period of time 2000-2004 with the use of unbalanced panel data. The results
derived indicate a strong and statistical significant curvilinear quadratic relationship between performance and ownership for the
Greek banks included in the study.
The remainder of the paper proceeds as follows. Section 2 offers a brief theoretical discussion on the issues that are characteristic
of bank governance and the reasons that distinct bank governance from governance of other firms. Data, methodology and summary
statistics are discussed in Section 3. The empirical results are presented in Section 4 and finally Section 5 concludes the paper
drawing on attention for further research on the subject of banks governance.
2 Corporate Governance of Banks
Literature offers a comprehensive view on the differences that exist between banks and other firms in terms of governance: the
lack of transparency and opaqueness in the operation and decision making of banks and high levels of government regulation
[Levine, 2004]. Macey and O‘hara (2003) adds that the different capital structure and the insurance of the deposits also add to the
differentiation of banks‘ governance. The growing importance of the banking sector in the growth of economies around the world,
have drawn research attention on the mechanisms affecting the banks‘ governance.
Opaqueness of operation is related to asymmetric information. Controlling shareholders and managers have more information
concerning funds allocation and loan financing compared to other shareholders and depositors. Therefore they are free to use banks
assets and funds for more risky projects. Given the long time period a loan is repaid, final outcomes are difficult to be measured and
results are more easily manipulated in the short term. This tactic can result to long run losses and increase in the provisions and NPLs
of a bank hindering the financial health and viability of the bank. Controlling shareholders may benefit from these situation by
deriving a short increase in share price, or even through tunneling, at the expense of small shareholders and depositors High risk
loans can also be given to corporations connected to the large shareholders not through strict financial credit processes, with better
terms, but also with higher chances of default..
1 Assistant Professor, TEI of Western Macedonia, Dept. of Business Administration, iantoniadis@teikoz.gr 2 Lecturer, TEI of Western Macedonia, Dept. of Information Technology Applications in Administration and Economy. 3 Assistant Professor, TEI of Western Macedonia, Dept. of Financial Applications
12 International Conference On Applied Economics – ICOAE 2010
Managers may give more risky loans in order to present better outcomes in terms of market share and sales, as well as better
interest income, in order to receive better compensation or to ameliorate their reputation in the market for managerial labor [Shleifer
& Vishny, 1997]. Lack of transparency and complexity and diversification of products also affects negatively the compensation
packages managers receive, giving them incentives to focus in short terms goals, at the cost of the long run expansion and financial
health of the bank.
However it is not only the complex operation of a bank that contributes to the lack of transparency. Banks themselves play a
significant and important role in the governance of other firms as creditors and shareholders. In this occasion bank managers may
also exercise weak control and governance rights over corporations that banks are shareholders. Asymmetric information poses a
significant problem in this case as well. In order to reduce asymmetric information long term relationships with clients may reduce
the problems associated with asymmetric information, but increase the possibility of risky financing. It is reasonable that
shareholders are not in position to monitor all these procedures on a regular basis.
Government regulation also sets a different business and operational environment for the banking sector. These regulations
include for example the way a bank operates and treats issues as, customers‘ deposits and their insurance, the financing of households
and firms, investment activities, liquidity indices, both through national laws and central bank supervision. Ownership concentration
and the market for corporate control for banks are also fields where the state intervenes in a direct fashion, through laws and
regulations, or indirectly through political interventions for the encouragement or the opposite of mergers and acquisitions. In
addition to national regulation and operation framework banks must also take into consideration a number of international laws and
regulations resultant by their operation in the world financial system. European Central Bank inspection regulations, Basel II, EU
directives and regulations of other countries where the bank operates add to the complexity of the legal and regulatory framework
that a bank has to conform with.
According to Ciancanelli and Reyes (2000) these levels of increased regulation should reduce the possibilities for shareholders
expropriation due to moral hazard issues, and to foster a more stable banking sector by posing a more strict and rigid framework for
banks‘ owners. However, notwithstanding the fact that in most countries banking industry is indeed heavily regulated, Furfine (2001)
points out the inadequacy of regulatory framework: ―rapid developments in technology and increased financial sophistication have
challenged the ability of traditional regulation and supervision to foster a safe and sound banking system‖. And finally another issue
that distorts the image is that the regulator is also itself both a shareholder-owner and a stakeholder as it uses the banking and
financial system in order to finance a part of its activities, creating a clear case of interests‘ conflict. This issue is important for the
present study, as the majority of banks examined in our sample were state controlled.
Opaqueness and increased levels of regulation lead to complex flow of information, within the engaged parts (managers and
shareholders). The diversification of products, activities and customers that each bank has, adds to this complexity. As deposits are
insured by the state (up to a certain amount of money), another agency problem of systemic risk arises, as managers have the
incentive to invest in more risky projects, having this risk shared with the state.
That may have been the issue for the present financial crisis that banks face, as there is the certainty fir the owners of the banks
that their institutions are too important, and their role is too central for the economy to let them go bankrupt or to leave them be
acquired by a foreign bank, as would happen in other industries. Managers and owners of banks taking under consideration these
facts are more prone to systemic risk and risky investments as despite the fact they will not bear the full cost of their decisions and
actions should they fail, they will take advantage of the full rewards in the case of success. These complexities and externalities pose
challenges for the governance of banks in terms of the agency theory.
Corporate Governance aims in aligning the interests of managers and shareholders, taking account at the same time for the
interests of the rest stakeholders. Shleifer and Vishny (1997) identify some of the major corporate governance mechanisms to reduce
agency cost. viewing a firm as a complex nexus of contracts among the claimants of residual claims and cash flow is at the heart of
agency theory. This complexity is scaled up when we are dealing with banks. The involved parties include depositors, households-
firms (creditors) and the need for economic growth. And an individual bank failure (no matter how small or big she is) can affect
negatively the whole banking sector of a country or even the world as we very bitterly learned (Macey O‘ Hara 2003).
The most celebrated way to avoid the expropriation of shareholder is through the existence of large shareholders or blockholders
as they are often referred. Large shareholders have both the incentives, the power and the means to actively monitor and control the
decisions taken by managers in a firm, improving the information flow within the company, and protecting at the same tie the
minority shareholders. That can be achieved through the active involvement and participation in General meeting of the shareholders,
and the appointment of members of the Board of Directors. However it may be possible that large shareholders may take advantage
of their position to expropriate in their turn the minority shareholders through the process of tunneling. Agency theory suggests that
ownership concentration leads to reduced agency costs and therefore better performance.
Banks are also different compared to other corporations as far as ownership is concerned. Most banks in Europe and Greece are
characterized by the existence of large shareholders and concentrated ownership structure, while only big banks are more diffuse. It
should be expected that higher levels of ownership concentration lead to better performance and reduction of agency cost. State
ownership can‘t solve the governance problem banks face as there may be conflict of interests as state is both the owner and the
regulator. Such a conflict of interest may also hinder market competition both in the finance-banking sector and in other industries as
well as funding of new projects may face difficulties, related to political and public issues.
Shleifer and Vishny (1997) also highlight the importance of markets as a mechanisms for reducing agency costs and namely the
market for managerial labor, corporate control, and the for products. According to both Mylonidis and Kelnikola (2005), and Rezitis
(2010) there has been intense mergers and acquisitions activity during the period before the study in the industry. That included both
the acquiring of smaller private banks, and the privatization of state banks. So during the period examined small but important
activity in market for corporate control was observed in the Athens Stock exchange market (Table 1). Another important mechanisms
for reducing agency cost is the competition in market for products. Intense competition forces firms to find ways for reducing agency
costs forcing managers and owners of the firms to adopt in the new business environment. However in banking industry intense
International Conference On Applied Economics – ICOAE 2010 13
competition means risky decisions with lower profit rates. However competition in the Greek banking sector during the period
examined was reduced [Rezitis, 2010], therefore the power of this mechanism is not expected to be significant.
Literature offers mixed result as far as the relationship between performance and ownership is concerned. Zulkafli and Samad
(2007) find a negative relationship between performance and large shareholder ownership. Bektas and Kaymak (2009) report similar
findings for the Turkish banks during 1001-2004. Belkhir (2009) also finds a negative effect of blockholding to performance
measured as the value of the firm. Shehazd et al (2010) find that concentrated ownership significantly decreases a bank's non-
performing loans ratio having therefore an indirect positive effect on the performance of a bank [Athanasoglou et al. 2006]. Finally
Gibson (2005) on the other hand found that ownership had no significant statistical effect on performance for the Greek banks, but
has not examined the percentage of shares the larger shareholder owns. It should be noted that other studies examining the Greek
banking sector [Spathis et al., 2002; Kosmidou & Zopounidis 2005; Asimakopoulos et al., 2008] have not included ownership
structure as a variable influencing performance.
3 Data and methodology
The sample of firms examined includes the listed in the ASE market banks during the period 2000-2004. A total of 15 banks were
included for this period as seen in Table 1. Due to the use of unbalanced panel data and changes in the number of bank listed we have
a maximum of 13 banks in 2000, and finally after a number of mergers-acquisitions and IPOs the number of worthy observations
falls to 10 in 2004. Bank of Greece was also excluded from the study due to her role as the central bank of Greece. In 2005 the IAS
were introduced posing a limitation to the period of time that can be examined.
Table 1: Banks included in the study
Bank Ownership identity Notes
1 ALPHA Domestic dispersed
2 ASPIS Domestic
3 ATEBANK State controlled Publicly Listed in 2001
4 ATTICA State controlled
5 BANK OF CYPRUS Foreign owned (Cyprus)
6 BANK OF GREECE State controlled Central Bank
7 EGNATIA Domestic
8 EMPORIKI State controlled
9 ETBA State controlled Acquired by Piraeus bank in 2002
10 ETEBA State controlled Acquired by NBG in 2002
11 EFG EUROBANK-
ERGASIAS Foreign owned (Luxemburg)
12 GENIKI State controlled
13 NBG (National Bank of
Greece) State controlled
14 PEIRAIOS Domestic dispersed
15 TELESIS Domestic
Acquired by EFG Eurobank-
Ergasias in 2001
In order to measure the relationship between ownership and bank performance, a performance regression is estimated:
Performanceit = α0 + β(ownership)it + γ (control variables)it + uit , (1)
where i stands for the bank and t= 2000-2004 and uit represents the disturbance term
In table 2 the variables used in the study are shown. Performance is measured with two measures of profitability. The first is
return on assets (ROA) which is calculated as the ratio of net income (profits) to total assets, and the second is return on equity which
is the ratio of net income (profits) to equity.
The ownership variable included in the model is the bigger shareholder owner (OWN) that accounts for the percentage that the
biggest owner holds and must be at least 5% of the company. The square of this variable (sq_OWN) is included to capture any
nonlinear relationship between performance and ownership according to relevant literature [Morck et al 1989; Agrawal & Knoeber
1997]. According to agency theory performance should increase as the percentage of the large shareholder rises until a certain point
as the blockholder becomes more actively involved in the management of the firm, and after should decrease as higher ownership
concentration leads to possible exploitation of minority shareholders.
A number of control variables are also included. The natural logarithm of the total assets of the bank (l_ASSETS) is used to
examine the effect of size on the performance of banks. Leverage (LEV) is measured as the ratio of equity to assets indicating the
degree of capital adequacy of the bank and its ability to withstand financial distress. A positive influence on profitability is expected
for this variable.
Liquidity (LIQ) is used as the ratio of loans to deposits of the bank showing the degree to which the bank is able to deal with
decreases in liabilities or oppositely to fund increases on assets [Athanasoglou et al. 2006]. As the ratio increases the liquidity of the
bank decreases [Spathis et al. 2002], but the effect on profitability may be positive as deposits are utilized in a more profitable way
increasing the income generated from loan interests. Therefore when more funds are used to finance new projects or loans higher
profitability is expected and a positive sign should be expected. Credit risk (RISK) is calculated as the ratio of loan loss provisions to
loans as a measure of risk exposure to non-performing loans and serves as an indicator for the quality of a banks‘ assets and credit
[Kosmidou , Zopounidis, 2005]. This variable can be a proxy for the risk management of a bank but it can also be seen as the result
14 International Conference On Applied Economics – ICOAE 2010
of increased managerial discretion leading to more risky funding allocation*. In both cases increased credit risk leads to lower
performance levels and the expected sign should be negative.
Both ownership and financial data has been provided by the Athens Stock Exchange Market (www.ase.gr).
Table 2 :List of variables
Variable Definition Expected sign
ROA Return on Assets Dependent
variables ROE Return on Equity
OWN Ownership percentage of the largest shareholder (>5%) Negative
sq_OWN Square of ownership percentage Positive
l_ASSETS Natural logarithm of the Total assets of the bank ?
LEV Leverage calculated as the ratio of equity to assets Positive
RISK Calculated as the ratio of loan loss provision to loans Negative
LIQ Liquidity calculated as the ratio of loans to deposits Positive
The descriptive statistics of the above variables are given in Table 3. The mean for the larger shareholder for the sample is
33.84%. The credit risk is relatively low for the total of the sample examined during this period with a mean value of 4.19%.
Leverage is also low (10.10%) as equity in banks is substantially lower compared to other firms [Macey & O‘Hara, 2003].
Table 3 : Summary Statistics (n =56 observations)
Variable Mean Median Std. Dev. Skewness Ex. kurtosis
OWN 0.338439 0.340000 0.288610 0.550235 -0.950430
sq_OWN 0.196265 0.115600 0.251088 1.28112 0.410319
l_ASSETS 22.7908 23.4135 1.27520 -0.0632202 -1.53700
ROA 0.0108878 0.0109117 0.0125121 -1.05687 7.18833
ROE 0.136663 0.136414 0.170233 -1.36911 7.91658
LEV 0.101031 0.0762318 0.0917940 2.92654 8.33851
LIQ 2.63113 0.940867 7.11565 4.10482 15.4015
RISK 0.0419458 0.0318616 0.0283028 1.81348 2.84930
The ratio of loans to deposits however needs further explanation. The inclusion of ETBA in the sample for 3 years
(2000,2001,2002) is responsible for the mean value of 263 % for liquidity which of course is not acceptable for banks, as ETBA did
not operate as a common commercial bank but rather as an investment bank under a different regulatory framework. With the
omission of this bank the mean value for liquidity is 94.7% which is a normal value. It should also be noted that there is a clear trend
of credit expansion that started during this period of time, as this ratio of liquidity was rising during the whole period for all banks.
Pearson‘s Correlation matrix in Table 4, shows that there is not a significant multicollinearity problem except for two cases. In the
first one the square of ownership (sq_OWN) seems to be highly correlated with ownership (OWN), and in the second case where
leverage (LEV) and liquidity also display high values in the correlation matrix.
Table 4 : Correlation matrix
Panel A : Dependent Variable ROA
ROA OWN sq_OWN l_ASSETS LEV LIQ RISK
1.0000 -0.0160 0.0531 -0.0211 0.2162 0.0105 -0.0381 ROA
1.0000 0.9588 -0.2763 0.2865 0.2497 0.4776 OWN
1.0000 -0.1409 0.2398 0.1990 0.4781 sq_OWN
1.0000 -0.3591 -0.1851 -0.0633 l_ASSETS
1.0000 0.9018 0.6711 LEV
1.0000 0.7386 LIQ
1.0000 RISK
Panel B : Dependent Variable ROE
ROE OWN sq_OWN l_ASSETS LEV LIQ RISK
1.0000 -0.2193 -0.1474 0.2957 -0.1904 -0.1617 -0.2199 ROE
1.0000 0.9588 -0.2763 0.2865 0.2497 0.4776 OWN
1.0000 -0.1409 0.2398 0.1990 0.4781 sq_OWN
1.0000 -0.3591 -0.1851 -0.0633 l_ASSETS
1.0000 0.9018 0.6711 LEV
* Another possible explanation for higher credit risk ratio would be a general financial crisis resulting to inability of households or firms to pay their
loans. However that is not the case for the period of time of the present study.
International Conference On Applied Economics – ICOAE 2010 15
1.0000 0.7386 LIQ
1.0000 RISK
As far as heteroscedasticity is concerned, heteroscedastic consistent standard errors were computed during the estimation of the
equation. Additionally appropriate F-tests and Hausman tests are performed and reported to choose between the fixed and random
effects model [Greene, 2000; Adkins, 2010 pp216-217], when panel data method is used, while the results for both models are
presented.
4 Results
In the following tables 5 and 6 and 7 the empirical results are presented. In both tables the estimates of two regressions are
offered, for fixed and random effects models. Table 5 shows the results for the performance regression using ROA as the dependent
variable, while in Table 6, ROE is used as the dependent variable. Regressions (1) and (3) take account only for the ownership
variables for fixed and random effects respectively while regressions (2) and (4) include the control variables discussed in section 3. Fixed effects model is preferred in both cases as F-test values are significant in a level of probability less than 1% in all cases.
Despite the fact that Hausman test also marginally rejects random effects model**
when control variables are introduced the results
reported by both models are similar. The choice of fixed effects brings to attention a number of interesting issues concerning banks
governance and management and is consistent with previous results of relative studies [Gibson, 2005]. The influence of ownership
and the other control variables used in the present paper are constant through time but differ across banks. Therefore banks seem to
use different management and ownership structure schemes that influence performance and profitability.
The most important finding of our results is the statistical significant non-linear relationship between both measures of
performance and ownership. In Figure 1 this relationship is shown graphically for regression (1) estimated in Table 5 when ROA is
the dependent variable. It can be seen that there is a decrease in ROA as ownership of the blockholder rises until a certain level of
ownership (est. 47.2%) and afterwards as ownership becomes more concentrated profitability rises again. AS seen in Table 5 neither
the introduction of control variables (regression 2) nor the random effects model (regressions 3-4) have an effect on the signs and the
significance of the ownership variables.
Figure 1 : ROA and blockholder ownership % relationship
The same findings are depicted in Figure 2 where the relationship between ROE and ownership is shown. According to the
results of regression (1) in Table 6 the same relationship can be found between ROE and ownership as the one described for Figure 1.
In this case as well, the value of ROE is falling as the ownership concentration rises and then for higher ownership concentration
levels (>50.3%) rises again. It should also be noted that the statistical significance of the coefficients estimated, has improved
significantly for both the ownership variable and its squared value to a 5% level of significance, and that the signs of the variables
remain the same with the addition of control variables, as shown in Table 6.
** at 5% level of significance
16 International Conference On Applied Economics – ICOAE 2010
Figure 2: ROE and blockholder ownership % relationship
In Table 5 the regression results are presented when the return on assets is used as the dependent variable. Adjusted R
2 is
satisfactory for the fixed effects model as it scores for 51.2% in regression (1), and rises up to 69.9% when control variables are
introduced. Values for Durbin Watson statistics do not imply autocorrelation problems. Ownership variable are statistically
significant for all models estimated and the signs do not change due to the inclusion of the control variables. Size of the bank has a
positive but not significant effect on performance as the leverage (capital adequacy) and the liquidity variable. Despite the fact that
fixed effects model is preferred it should be noted that results as far as the signs of the coefficients re concerned, are not different in
the random effects model with the exception of the size variable that has a negative but still not statistically significant effect.
Table 5 : Dependent variable ROA
Fixed effects model Random Effects model
(1) (2) (3) (4)
const 0.02301** -0.08154 - -
(2.678) (-0.4536)
[0.0106] [0.6528]
OWN -0.09698* -0.04269** -0.05235 -0.04757
(-1.924) (-2.309) (-1.669) (-1.434)
[0.0614] [0.0268] [0.1010] [0.1580]
sq_OWN 0.1029** 0.05064** 0.06213* 0.05918*
(2.376) (2.842) (1.927) (1.784)
[0.0222] [0.0073] [0.0593] [0.0808]
l_ASSETS - 0.004638 - -0.0002711
(0.5868) (-0.09622)
[0.5610] [0.9237]
LEV - 0.1029* - 0.09729**
(2.025) (2.539)
[0.0503] [0.0144]
RISK - -0.5192** - -0.3247**
(-2.256) (-3.120)
[0.0303] [0.0031]
LIQ - 0.0008248 - 5.865e-06
(1.660) (0.01049)
[0.1056] [0.9917]
n 57 55 57 55
Adj. R2 0.5127 0.6990
S.E. of Regression 0.0085 0.0068 0.0121 0.0123
International Conference On Applied Economics – ICOAE 2010 17
Durbin Watson 1.6361 1.8169
F test F(13, 41) = 5.1270
[.0000]
F(12,36) = 7.2507
[.0000]
- -
Hausman test - - X2(2)= 1.1016
[.5764]
X2(6)=15.2729
[.0179] * P-Value < 0.1, ** P-Value < 0.05, t-statistics in parentheses, p-values in brackets
The results of the regressions when return on equity is used as the dependent variable are offered in Table 6. Adjusted R2 remains
relatively high for the fixed effects model giving a value of 36.5% in regression (1), increasing up to 51.6% with the inclusion of
control variables. Ownership variable are statistically significant for all models estimated. The addition of control variables in
regression (2) improves significantly the statistical importance of the squared ownership variable to 1% level of significance. Size of
the bank has a negative this time but not significant effect on performance as the leverage (capital adequacy) and risk variable but
only the latter is statistical significant. Finally liquidity has a positive effect. Notwithstanding the fact that fixed effects is preferred to
random effects model, there is no change in the results of the signs of the coefficients estimated.
Table 6 : Dependent variable ROE
Fixed effects model
Random Effects model
(1) (2) (3) (4)
const 0.3610*** 1.274 - -
(2.895) (0.5951)
[0.0061] [0.5555]
OWN -1.626** -1.068** -0.6387* -0.7891
(-2.212) (-2.333) (-1.867) (-1.633)
[0.0326] [0.0253] [0.0674] [0.1089]
sq_OWN 1.614** 1.252*** 0.6661* 0.9393*
(2.580) (3.052) (1.776) (1.895)
[0.0135] [0.0042] [0.0814] [0.0641]
l_ASSETS - -0.02640 - -0.002672
(-0.2863) (-0.07088)
[0.7763] [0.9438]
LEV - -1.922 - -0.8534
(-1.684) (-1.398)
[0.1007] [0.1685]
RISK - -6.895* - -3.649**
(-1.757) (-2.278)
[0.0875] [0.0272]
LIQ - 0.01993** - 0.01655*
(2.327) (1.883)
[0.0257] [0.0658]
n 57 55 57 55
Adj. R2 0.3615 0.5161 - -
S.E. of Regression 0.1324 0.1173 0.1604 0.1739
Durbin Watson 1.4543 1.5192 - -
F test F(13,41) = 2.9957
[.0036]
F(12,36) = 4.7863
[.0001]
- -
Hausman test - - X2(2)= 1.9833
[.3709]
X2(6)=14.4469
[.0250] * P-Value < 0.1, ** P-Value < 0.05, *** P-Value < 0.01, t-statistics in parentheses, p-values in brackets
The above results concerning ownership are opposite to the expected signs as seen in Table 2. Large shareholders usually are
more accountable, and closely monitor the management team appointed. These banks are usually state banks that during the last
decade have gradually transformed from state controlled bureaucratic organizations to more business-oriented organizations adopting
operation methods used in the private sector, converging with the models used there [Gibson, 2005]. On the other hand diffused
ownership is found mainly in the big banks (Alpha Bank, Piraeus Bank, National Bank of Greece) where the existence of other
governance mechanisms is equally important as institutional shareholders, Board of Directors, product market etc [Shleifer &
Vishny, 1997] poise the lack of concentrated ownership as a way of controlling management. Especially for the mechanism of market
18 International Conference On Applied Economics – ICOAE 2010
of products, the shift towards a less competitive market during the period examined [Rezitis, 2010] must be taken under
consideration. For the rest of the banks the case of expropriation of minority shareholders from both managers and majority
shareholders is very possible, as performance-profitability is lower compared to the banks categories just mentioned. This
expropriation can be seen in ways of overinvestment, allocation of funds in projects with high risk, bad management and
management entrenchment etc.
These findings give partial support, for the framework suggested by Ciancanelli and Reyes (2000), concerning ownership and
moral hazard in banks. Banks with large shareholders, but not enough concentrated ownership that would lead to strict monitoring of
the management by both the shareholders and other stakeholders as the depositors, are likely to face decreased performance and
profitability as shown in Figure 1 and 2.
As far as the rest of the control variables are concerned the results and the signs of the coefficients reported in Tables 5 and 6 are
in line with the expected signs that literature suggest. Our results for ROA and its relationship with control variables agree with the
findings of relevant studies [Asimakopoulos et al, 2008; Athanasoglou et al 2006]. However only the credit risk variable is
statistically significant. When ROE is used as an independent variable Leverage seems to affect negatively the performance measure,
but the relationship is not statistically significant, while the loans provisions to loans ratio (RISK) and loans to deposits ratio (LIQ) is
statistically important. In all regressions estimated size of the bank does not seem to influence profitability.
Table 7 : Summary of findings
Variable Expected sign ROA ROE
OWN Positive Negative ** Negative **
sq_OWN Negative Positive ** Positive ***
l_ASSETS ? Positive Negative
LEV Positive Positive Negative
RISK Negative Negative ** Negative *
LIQ Positive Positive Positive **
* P-Value < 0.1, ** P-Value < 0.05, *** P-Value < 0.01
These findings can also be explained due to the market conditions at the period of time examined. Banking sector has faced a
wave of merger and acquisitions during the 90s, as a result of deregulation and privatization of state banks [Mylonidis, Kelnikola,
2005], and entered a phase where the industry became less competitive and more concentrated [Rezitis, 2010], and banks struggled
for market shares and financial expansion in the new macroeconomic environment formed with the introduction of the Euro as the
single currency.
5 Conclusions
Governance of banks is a costly task as banks are opaque and complex organizations with agency problem are different compared
to other listed firms. This study examines the relationship between performance-profitability and the ownership in the Greek banking
sector for the period 2000-2004. The existence of a non-linear relationship is examined as Morck et al (1988) and Agrawal and
Knoebler (1997) suggest. The relationship has been statistically significant but in contrast to what expected by agency theory, high
levels of ownership concentration and diffused ownership in Greek banks tend to increase profitability.
These results can be explained considering both the identity of the larger shareholder and the business model of each bank
separately as suggested by the choice of the fixed effects model. Our findings also provide some evidence that performance and
ownership for the Greek banks is not necessarily a conflict between managers and owners, or between large and minority
shareholders, as agency theory would imply but also an issue of moral hazard. Large shareholders that do not hold the majority tend
to take riskier decisions for the allocation of funds, investments and expansion, at the cost of performance and profitability.
Ownership therefore seems to be an important factor affecting the governance and the performance of a bank. However, it is the
not the only one. A weakness of the present study is the small number of observations, for the examined period of time. The inclusion
of more observations in our sample would make possible the introduction of more variables examining other important corporate
governance mechanisms as the identity of the shareholder, management characteristics the composition of board of directors. The
current crisis faced by the financial sector and especially the banks highlights in the most dramatic way the need for further research
on the governance mechanisms of Greek banks.
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