Influence of board and ownership structure on bank profitability: evidence from South East Europe

Abstract

We investigate the impact of board and ownership structure on profitability of 74 commercial banks from four transition economies of South East Europe over the 2005-2010 period. We analyse this relation using Ordinary Least Squares regression analysis on an unbalanced panel data-set of 377 observations. We find negative and significant relationship between board size and bank profitability, while the proportion of independent directors on the board is negatively, but insignificantly related to bank profitability. Impact of ownership concentration on bank profitability is negative, but weak. We also find that privately held domestic banks outperform state-owned and foreign banks. Important factors influencing bank profitability in South East Europe are also bank size and bank capitalisation.

Measuring the impact of board characteristics on the performance of Croatian insurance companies

“…The control variable size based on assets (LN_ASSETS) is significant as well and, as expected, positively affects insurer's performance. This is in accordance with findings by, for example, Stancic et al 17 and Dogan, 76 to name a few. Hardwick et al, 50 analyzing organizations in life insurance industry and connection between board characteristics and profit efficiency, also found that larger firms have higher profit efficiency, suggesting this to be a consequence of their economies of scale and scope.…”

“…15 Most studies that investigate the impact of board structure on corporate performance in the financial sector, as it is usually the case, refer to banks. [16][17][18] The insurance industry, as an object of analysis, is represented to a much lesser extent. [19][20][21] Existing studies have mainly analyzed the connection among several different corporate governance mechanisms and performance of insurance companies.…”

The Effect of Multiple Large Shareholders on Banks’ Profitability and Risk

“…Thanks to their specific knowledge of the industry, institutional investors can in fact contribute to mitigating asymmetric information problems and reducing managerial myopia, thus influencing banks' financial performance and risk. Our paper contributes to the existing literature regarding the effect of relevant and multiple shareholders on bank profitability, as well as confirms that a higher number of large and institutional shareholders increases bank profitability [36,37]. However, contrary to previous research [65] based on non-financial companies, our results demonstrate that significant equity investments held for longer periods do not increase bank profitability.…”

“…However, banks with dispersed ownership record lower ROA and higher ROE. Reference [36] analyzed a sample of 74 commercial banks from four transaction economies of southeast Europe over the period 2005-2010. They found that ownership concentration significantly decreases bank profitability.…”

Impact of Ownership Concentration on Capital Structures: A Case of Turkish Banking Sector

“…Similarly, Al-Amarneh (2014) found that the largest shareholder's capital share was 56.76% in the study conducted on 13 publicly-traded banks operating in Jordan during 2000-2012 period. Stančić et al (2014) found that the largest shareholder's share of capital in the North East European banking sector was 79.19% for Bosnia and Herzegovina, 82.54% for Croatia, 77.67% for Macedonia and 72.39% for Serbia. As can be seen, in most of the studies on the banking sector, the share of the largest shareholder seems to be quite high.…”