The relationship between ownership structure and management performance in Korean mutual savings banks
Wise, Andrew S
Despite financial supervisors' efforts to prevent defaults of financial institutions, the failure of such institutions continues. One main reason for the continuing problem may be ineffective corporate governance. This paper investigates the relationship between the Korean Mutual Saving Banks (MSBs)' management performance and their ownership structure, asset and capital size, and macroeconomic circumstances, before and after the recent global financial crisis. I selected 98 normal mutual saving banks operating at the end of June 2011 (e.g., the end of FY11) as my original sample and combined data from the remaining banks for recent seven years. As management performance indicators, I chose two dependent variables: Bank for International Settlement (BIS) ratio and Return on Assets (ROA). As independent variables for analyzing the relationship between management performance and ownership structure, I chose the character of the largest shareholder and the share ratio of controlling shareholders. I also add two other independent variables, GDP growth rate and area building permit growth rate, to reflect the external environment. It concludes that as ownership becomes more concentrated, both the stability (BIS ratio) and profitability (ROA) of Korean mutual savings banks increase significantly, and ownership character affects a saving bank's stability but does not affect its profitability; while increasing asset size and capital size negatively affected a bank's stability. However, the extent and sign of these effects change after the global financial crisis (2009-2011). These results are useful to financial supervisor policymakers when they authorize saving banks to carry on business, monitor and investigate existing saving banks, and sell a problem saving bank or induce mergers and acquisitions. Financial supervisors should consider the ownership structure when they authorize savings banks to carry on in business or they sell a problem MSB or induce an M&A. In addition, financial supervisors should monitor and investigate existing MSBs more deliberately when the size of their assets and/or capital increase substantially or the degree of concentration diminishes.
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