Study of the Effects of Controlling Shareholders on Profitability, Risk and Performance of Savings Banks in Korea
This study analyzes the effects of controlling shareholders on profitability, risk and performance of saving banks in Korea, and those of controlling shareholders on productivity and cost efficiency. Shareholders tend to shift risks of investment to bondholders, and so does controlling shareholders. We find that savings banks, with the controlling shareholder¡¯s ownership, pursue higher risk-higher return, and make better performance and higher cost efficiency. We find, first, that savings banks keep severe financial risk with too high leverage, which make controlling shareholders shift risks of investment to bondholders. Second, we also find that both the standard deviation and the change ratio of savings banks¡¯ ROA tend to be higher with the controlling shareholder¡¯s ownership. Third, we find that the ROA tend to increase with the controlling shareholders ownership. Second and third results suggest that savings banks pursue higher risk-higher return. Fourth, we also find that net interest tend to higher with the controlling shareholders ownership. This result suggests that savings banks tend to perform more aggressive strategies to get more interest profits with the controlling shareholder¡¯s ownership. Fifth, we find that net income per capita tend to increase with the controlling shareholders ownership. Sixth, we also find that labor cost per capita tend to increase with the controlling shareholders ownership. Fifth and Sixth results suggests that productivity and labor cost efficiency of savings banks get better with the controlling shareholder¡¯s ownership, for the controlling shareholders intend to increase their own wealth through performance improvement of savings banks. In conclusion, these results suggest that controlling shareholders have performed both negative function of ¡°risk shifting¡± and positive functions of higher profitability, better performance and cost efficiency.
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