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Ownership Structure and Risk-taking Behavior: Evidence from Banks in Korea and Japan

Authors

  • Sun Eae Chun,

    1. Chung-Ang University, Korea
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  • Mamoru Nagano,

    Corresponding author
    1. Nagoya City University, Japan
      Chun: Graduate School of International Studies, Chung-Ang University, 221, Heukseok-dong, Dongjak-gu, Seoul 156-756, Korea. Email: sechun@cau.ac.kr. Nagano (corresponding author): Graduate School of Economics, Nagoya City University, Yamanohata 1, Mizuho Nagoya City 467-8501, Japan. Email: mnagano@econ.nagoya-cu.ac.jp. Lee: Division of Global Finance and Banking, College of Business Administration, Inha University 253, Yonghyun-dng, Nam-gu, Incheon 402-751, Korea. Email: skymh@inha.ac.kr.
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  • Min Hwan Lee

    1. Inha University 253, Korea
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Chun: Graduate School of International Studies, Chung-Ang University, 221, Heukseok-dong, Dongjak-gu, Seoul 156-756, Korea. Email: sechun@cau.ac.kr. Nagano (corresponding author): Graduate School of Economics, Nagoya City University, Yamanohata 1, Mizuho Nagoya City 467-8501, Japan. Email: mnagano@econ.nagoya-cu.ac.jp. Lee: Division of Global Finance and Banking, College of Business Administration, Inha University 253, Yonghyun-dng, Nam-gu, Incheon 402-751, Korea. Email: skymh@inha.ac.kr.

Abstract

This study analyzes the effects of managerial ownership on the risk-taking behavior of Korean and Japanese banks during the relatively regulated period of the late 1990s to the early 2000s. It finds that managerial ownership alone does not affect either the risk or the profit levels of Korean banks. In contrast, an increase in managerial ownership adds to the total risk of Japanese banks. However, increased risk-taking behavior does not produce higher levels of profit for Japanese banks. The coefficients of the interaction term between franchise value and managerial ownership are negative and statistically significant for both the Korean and the Japanese banking industries. This means that an increase in managerial ownership in banks with high franchise values discourages risk-taking behavior. The results confirm the disciplinary role of franchise value on the risk-taking behavior of banks. These results also fall in line with previous literature supporting the moral hazard hypothesis based on research into the economies of the USA and other countries.

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