Title :	Ownership structure and bank performance: a case of Nepalese commercial banks
Material Type:	printed text
Authors:	Sabitri Pant, Author
Publication Date:	2017
Pagination:	114p.
Size:	GRP/Thesis
Accompanying material:	9/B
Languages :	English
Descriptors:	Stock ownership
Class number:	658.152
Abstract:	The financial sector is very crucial to the economic development of the nation. Banks play crucial role in the financial sector especially when it comes to developing economies where the capital market is not strong enough.Therefore, regulators, economists as well as market community are disproportionately sensitive towards banks performance (Rahman & Maruf, 2013).The ownership structure is not only defined by the distribution of equity with regard to votes and capital, but also by the identity of the equity owners.A firm ownership structure can be defined along two main dimensions. First, the degree of ownership concentration: firms may differ because their ownership is more or less dispersed. Second, the nature of owners, given the same degree of concentration, two firms may differ if the government holds a majority of the stake in one of them; similarly, a stock firm with dispersed ownership is different from a mutual firm (Iannotta, et al. 2007). Ownership structure of any company has been a serious agenda for corporate governance and that of performance of a firm. Thus, who owns the firm’s equity and how does ownership affect firm value has been an interesting topic to investigate. Many studies have been undertaken to study the impact of ownership structure in developed countries but in Nepal there are few studies which have been conducted on this issue. This study investigates the relationship between ownership structureand bank performance in selected Nepalese commercial banks. Ownership structure andconcentration are considered as important factors that affect a firm’s health.If the ownership structure and concentration affects a firm’s health, then it is possible to use the ownership structureand concentration to predict the probability of default. Empirical studies on the relationship between the firm’s ownership structure and performance have produced mixed results. Ownership structure is one of the main dimensions of corporate governance and is widely seen to be determined by country-level corporate governance characteristics such as development of the stock market and the nature of state intervention and regulation (Porta, et al., 1998). The major objective of this study is to assess the relationship of ownership structure on the performance of commercial banks in Nepal.The study is based on pooled cross-sectional data of 21 commercial banks for the period of 2009/10 to 2014/15 leading to a total of 126 observations. The data are collected from Banking and Financial Statistics published by Nepal Rastra Bank and annual reports of the selected commercial banks. The dependent variables are Tobin’s Q andreturn on assets whereas the independent variable are ownership concentration, ownership structure and bank specific control variables. Ownership concentration is measured using two variables and they are: summation of percentage of shares held by top five shareholders and large ownership defined is at least one owner with shareholdings greater than 10%. Likewise, ownership structure has been categorized as foreign ownership anddomestic ownership. Descriptive research design and causal comparative research design has been employed in order to analyze the impact of ownership structure on performance of commercial banks in Nepal. The result shows that average Tobin’s Q is highest for SCBL.ADBL has the highest average return on assets among the selected commercial banks throughout the study period. Similarly,the average concentrated ownershipis highest for SCBL (76.73 percentage),the average total asset is highest for NABIL (Rs.75 in Billion), and the average debt to equity ratio is highest for NIC Asia (91.96 times).The descriptive statistics shows that ROA ranges from 0.05 percent to a maximum of 4.41 percent, leading to an average ROA of 1.64 percent while the Tobin’s Q ranges from 0.53 times to 2.06 times, leading to an average of 1.23 times. Likewise, Ownership concentration varies from 8.36 percent to 77.25 percent, leading to an average of 41.05 percent. Foreign ownership ranges from 0 percent to 75 percent, leading to an average of 11.09 percent. The average domestic ownership of the selected banks during the study period is noticed to be 88.91percent with a minimum of 25 percent and a maximum of 100 percent. Likewise, bank size ranges from Rs. 22.70 billion to Rs.25.48 billons, leading to an average of Rs.24.26 billion. Bank age varies from 2 years to 47 years, leading to an average of 15.64 years. The average debt to equity ratio is noticed to be 9.79 times with a minimum of 3.44 times to a maximum of 19.16 times. The correlation analysis shows that Tobin's Q is positively correlated to five largest shareholders (CON5), foreign ownership, bank size, age of bank and debt equity ratio. This indicates that higher the ownership concentration, foreign ownership, bank size, bank age and debt to equity ratio, higher would be the Tobin’s Q. However, domestic ownership is negatively correlated to Tobin’s Q. This indicates that higher the domestic ownership, lower would be the Tobin’s Q. Result also shows that return on assets (ROA) is positively correlated to five largest shareholders (CON5), foreign ownership, bank size and bank age. This indicates that higher ownership concentration, foreign ownership, bank size and bank age, higher would be return on assets. However, domestic ownership and debt equity ratio are negatively correlated to return on assets. This indicates that higher the domestic ownership and debt equity ratio, lower would be the return on assets. The regression results show that a beta coefficient for ownership concentration is positive with performance (Tobin's Q and ROA). However, the coefficients are not significant, which indicates that ownership concentration has nothing to do with profitability of the Nepalese commercial banks. Likewise, beta coefficient for foreign ownership is positive and significant with performance. This indicates that banks with foreign ownership are more able to obtain higher performance than that of domestic counterparts. Similarly, the beta coefficient of domestic ownership is negative and significant with performance, which indicates that the bank with domestic ownership would result poor performance. The regression results also show that beta coefficients are negative and significant for debt ratio, it indicate that higher the debt ratio, lower would be the bank performance. Likewise, the beta coefficient for bank age and bank size is positive with performance. Therefore, study concludes that ownership concentration has no impact on profitability of the Nepalese commercial banks rather the profitability is affected by the ownership structure. Foreign ownership has positive and significant impact on bank performance. However, domestic ownership has negative impact on banks performance.

Ownership structure and bank performance: a case of Nepalese commercial banks [printed text] / Sabitri Pant, Author . - 2017 . - 114p. ; GRP/Thesis + 9/B.
Languages : English

Descriptors:	Stock ownership
Class number:	658.152
Abstract:	The financial sector is very crucial to the economic development of the nation. Banks play crucial role in the financial sector especially when it comes to developing economies where the capital market is not strong enough.Therefore, regulators, economists as well as market community are disproportionately sensitive towards banks performance (Rahman & Maruf, 2013).The ownership structure is not only defined by the distribution of equity with regard to votes and capital, but also by the identity of the equity owners.A firm ownership structure can be defined along two main dimensions. First, the degree of ownership concentration: firms may differ because their ownership is more or less dispersed. Second, the nature of owners, given the same degree of concentration, two firms may differ if the government holds a majority of the stake in one of them; similarly, a stock firm with dispersed ownership is different from a mutual firm (Iannotta, et al. 2007). Ownership structure of any company has been a serious agenda for corporate governance and that of performance of a firm. Thus, who owns the firm’s equity and how does ownership affect firm value has been an interesting topic to investigate. Many studies have been undertaken to study the impact of ownership structure in developed countries but in Nepal there are few studies which have been conducted on this issue. This study investigates the relationship between ownership structureand bank performance in selected Nepalese commercial banks. Ownership structure andconcentration are considered as important factors that affect a firm’s health.If the ownership structure and concentration affects a firm’s health, then it is possible to use the ownership structureand concentration to predict the probability of default. Empirical studies on the relationship between the firm’s ownership structure and performance have produced mixed results. Ownership structure is one of the main dimensions of corporate governance and is widely seen to be determined by country-level corporate governance characteristics such as development of the stock market and the nature of state intervention and regulation (Porta, et al., 1998). The major objective of this study is to assess the relationship of ownership structure on the performance of commercial banks in Nepal.The study is based on pooled cross-sectional data of 21 commercial banks for the period of 2009/10 to 2014/15 leading to a total of 126 observations. The data are collected from Banking and Financial Statistics published by Nepal Rastra Bank and annual reports of the selected commercial banks. The dependent variables are Tobin’s Q andreturn on assets whereas the independent variable are ownership concentration, ownership structure and bank specific control variables. Ownership concentration is measured using two variables and they are: summation of percentage of shares held by top five shareholders and large ownership defined is at least one owner with shareholdings greater than 10%. Likewise, ownership structure has been categorized as foreign ownership anddomestic ownership. Descriptive research design and causal comparative research design has been employed in order to analyze the impact of ownership structure on performance of commercial banks in Nepal. The result shows that average Tobin’s Q is highest for SCBL.ADBL has the highest average return on assets among the selected commercial banks throughout the study period. Similarly,the average concentrated ownershipis highest for SCBL (76.73 percentage),the average total asset is highest for NABIL (Rs.75 in Billion), and the average debt to equity ratio is highest for NIC Asia (91.96 times).The descriptive statistics shows that ROA ranges from 0.05 percent to a maximum of 4.41 percent, leading to an average ROA of 1.64 percent while the Tobin’s Q ranges from 0.53 times to 2.06 times, leading to an average of 1.23 times. Likewise, Ownership concentration varies from 8.36 percent to 77.25 percent, leading to an average of 41.05 percent. Foreign ownership ranges from 0 percent to 75 percent, leading to an average of 11.09 percent. The average domestic ownership of the selected banks during the study period is noticed to be 88.91percent with a minimum of 25 percent and a maximum of 100 percent. Likewise, bank size ranges from Rs. 22.70 billion to Rs.25.48 billons, leading to an average of Rs.24.26 billion. Bank age varies from 2 years to 47 years, leading to an average of 15.64 years. The average debt to equity ratio is noticed to be 9.79 times with a minimum of 3.44 times to a maximum of 19.16 times. The correlation analysis shows that Tobin's Q is positively correlated to five largest shareholders (CON5), foreign ownership, bank size, age of bank and debt equity ratio. This indicates that higher the ownership concentration, foreign ownership, bank size, bank age and debt to equity ratio, higher would be the Tobin’s Q. However, domestic ownership is negatively correlated to Tobin’s Q. This indicates that higher the domestic ownership, lower would be the Tobin’s Q. Result also shows that return on assets (ROA) is positively correlated to five largest shareholders (CON5), foreign ownership, bank size and bank age. This indicates that higher ownership concentration, foreign ownership, bank size and bank age, higher would be return on assets. However, domestic ownership and debt equity ratio are negatively correlated to return on assets. This indicates that higher the domestic ownership and debt equity ratio, lower would be the return on assets. The regression results show that a beta coefficient for ownership concentration is positive with performance (Tobin's Q and ROA). However, the coefficients are not significant, which indicates that ownership concentration has nothing to do with profitability of the Nepalese commercial banks. Likewise, beta coefficient for foreign ownership is positive and significant with performance. This indicates that banks with foreign ownership are more able to obtain higher performance than that of domestic counterparts. Similarly, the beta coefficient of domestic ownership is negative and significant with performance, which indicates that the bank with domestic ownership would result poor performance. The regression results also show that beta coefficients are negative and significant for debt ratio, it indicate that higher the debt ratio, lower would be the bank performance. Likewise, the beta coefficient for bank age and bank size is positive with performance. Therefore, study concludes that ownership concentration has no impact on profitability of the Nepalese commercial banks rather the profitability is affected by the ownership structure. Foreign ownership has positive and significant impact on bank performance. However, domestic ownership has negative impact on banks performance.