Nora Azureen Abdul Rahman, Nor Hayati Ahmad, Nur Adiana Hiau Abdullah

(School of Economics, Finance and Banking, College of business, Universiti Utara Malaysia)

 

 

Abstract: This paper provides new empirical evidence on the association of ownership structure and bank risk taking, and the effects of capital regulation on the association. The empirical analysis of this study is confined to Malaysian commercial banks during the periods of 1995–2008. Overall, it is found that ownership structure of Malaysian banks exerts positive impacts to the banking institutions; indicating that the existence of large shareholders in Malaysian banks reduces bank risk taking and increases bank stability. The findings also show that capital regulation plays an important role in influencing the impact of ownership on bank risk taking. However, higher capital regulation has unintended effects whereby banks might response to the regulation by increasing their risk taking. The empirical findings thus, suggest that agency hypothesis associated with expropriation of banks creditors’ interest by large shareholders and the role of high capital regulation in reducing bank risk taking is not applicable to Malaysian banks.

 

 

Key words: ownership structure; capital regulation; bank risk taking

 

JEL codes: G3, G32