Proceedings of 10th Asian Business Research Conference
6 - 7 October 2014, Novotel Bangkok on Siam Square, Bangkok, Thailand, ISBN: 978-1-922069-62-7
Block holder Ownership & Government Guarantees
D Dulani Jayasuriya
Utilizing 2236 banks from 78 countries, this study examines how block holder ownership of private,
state and foreign owned banks interact with long & short term government guarantees when
determining banking stability (risk, lending, profitability, sources and costs of bank funding). We
find that long and short term government guarantees result in a reduction in risk and lending by
0.33% and 0.34% for state block-holder ownership, reduction in lending by 0.79% for private
block-holder ownership relative to foreign banks. Our results clearly contradict the risk shifting
theory for banks with state and private block-holders by implying that the monitoring effects
outweighing risk shifting theories. Long and short term government guarantees result in an
increment in CAR Ratios by 8.39% for state block-holders relative to foreign ownership. Long term
government guarantees result in weakening the balance sheet of local state and private banks that
receive funding relative to foreign banks. These results stress the importance of constrained
guarantees by the government.
JEL: G21, G28, G32, H44
Keywords: Early warning Ratios, Government guarantees, Bank Ownership, Basel III Accord
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Ms. D Dulani Jayasuriya, Department of Finance, National University of Singapore, Singapore, Email:
g090061@nus.edu.sg.