Banking Ownership and Market Discipline: International Evidence
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Abstract
This paper analyzes the effect of bank ownership structure on market discipline in an international sample of banks. We control for unobservable bank, country, and time specific effects using a panel data set banks from 88 countries during the period 2002-2012. The price of deposits is used to measure market discipline in a dynamic panel data methodology on a sample of 837 commercial banks. We find that on average market discipline weakens with foreign bank, while enhances with stated-own bank after 2008 banking crisis. Second, better external audit and accounting disclosure will improve market discipline, but at the same time it worsens with the by stricter restrictions on bank activities. Third, increased domestic private ownership significantly strengthens the market discipline on small bank, less competition market or ex post funding of deposit insurance. These results have important implications for banking ownership and market discipline, particularly after a crisis period.
