Ownership and performance in the Greek banking sector

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, [email protected] 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


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


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.


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


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


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


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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