Impact of Ownership Structure and Ownership Concentration on Credit Risk of Chinese Commercial Banks

Abstract

Purpose- The purpose of this study is to examine the effects of bank ownership structure and ownership concentration on credit risk.

Design/methodology/approach- Using panel data on a sample of 88 Chinese commercial banks with 1194 observations over a period of 2003-2018, this study employs system generalised method of moments regression to examine the impact of bank ownership structure and ownership concentration on credit risk. Two measures of credit risk, namely, non-performing loan ratio and loan loss provision ratio are used to ensure the robustness of the results.

Findings– The results show that ownership type (both government and private ownership) exert positive and significant impact on credit risk. However, our results indicate that concentration of ownership in the hands of government has negative and significant effect on credit risk while private ownership concentration positively impacts on credit risk. Overall our findings suggest that concentration of ownership in government hands reduces risk, whilst private ownership concentration exacerbates credit risks. Our results are invariant to alternative measures of credit risk and financial crisis.

Practical implications – The findings provide useful insight to guide policy decisions in Chinese banks’ lending policies and bank ownership.

Originality/value– Using hand collected data on ownership structure and governance from annual reports this study deepens our understanding on the effectiveness of Chinese banks’ corporate governance reforms on managing credit risks.