Do Ownership Type and Ownership Concentration Affect Liquidity Creation? A Case Study of Commercial Bank in Indonesia
DOI:
https://doi.org/10.37385/ijedr.v5i2.5008Keywords:
Liquidity Creation, Ownership Types, Ownership ConcentrationAbstract
The ability to create liquidity is crucial for banks because a lack of liquidity can lead to failure. This study aims to examine the influence of ownership types and ownership concentration on liquidity creation. The study divides bank ownership types into government ownership, bank ownership, institutional ownership, non-financial company ownership, and family ownership. Additionally, ownership concentration is considered as a moderating variable and measured at various levels ranging from 25% to 85%. The research seeks to investigate whether, according to corporate governance theory, ownership concentration affects a bank's decisions in creating liquidity, and whether, according to ownership structure theory, the risk-taking behavior and agency problems of each ownership type differ, thus affecting the bank's ability to create liquidity. The sample for this study comprises 84 Commercial Banks in Indonesia. The analysis employs dynamic panel data regression, covering the period from 2018 to 2022. Based on the research findings, it is discovered that ownership concentration has a significant negative effect on liquidity creation, indicating that liquidity creation is more prevalent among less concentrated banks. Ownership type does have an effect, but not on all ownership types. Institutional ownership has a positive effect on liquidity creation, whereas bank ownership by other banks has a negative effect. Ownership by the state, family, and company does not significantly affect liquidity creation. Ownership concentration affects liquidity creation at levels below 65%, whereas at levels above 75%, there is no significant influence of ownership concentration on liquidity creation. Another finding is that liquidity creation is more prominent in smaller banks compared to larger ones.
References
Anderson, R. C., & Reeb, D. M. (2003). Founding-family ownership, corporate diversification, and firm leverage. The Journal of Law and Economics, 46(2), 653–684. https://www.journals.uchicago.edu/doi/abs/10.1086/377115
Barry, T. A., Lepetit, L., & Tarazi, A. (2011). Ownership structure and risk in publicly held and privately owned banks. Journal of Banking & Finance, 35(5), 1327–1340. https://doi.org/10.1016/j.jbankfin.2010.10.004
Berger, A. N., & Bouwman, C. H. S. (2009). Bank liquidity creation. The Review of Financial Studies, 22(9), 3779–3837. https://doi.org/10.1093/rfs/hhn104
Bhattacharya, S., & Thakor, A. V. (1993). Contemporary banking theory. Journal of Financial Intermediation, 3(1), 2–50. https://doi.org/10.1006/jfin.1993.1001
Demirgüç-Kunt, A., & Detragiache, E. (2002). Does deposit insurance increase banking system stability? An empirical investigation. Journal of Monetary Economics, 49(7), 1373–1406. https://doi.org/10.1016/S0304-3932(02)00171-X
Diamond, D. W., & Dybvig, P. H. (1983). Bank runs, deposit insurance, and liquidity. Journal of Political Economy, 91(3), 401–419. https://www.journals.uchicago.edu/doi/abs/10.1086/261155
Distinguin, I., Roulet, C., & Tarazi, A. (2013). Bank regulatory capital and liquidity: Evidence from US and European publicly traded banks. Journal of Banking and Finance, 37(9), 3295–3317. https://doi.org/10.1016/j.jbankfin.2013.04.027
Iannotta, G., Nocera, G., & Sironi, A. (2007). Ownership structure, risk and performance in the European banking industry. Journal of Banking & Finance, 31(7), 2127–2149.
Jensen, M. C., & Meckling, W. H. (2019). Theory of the firm: Managerial behavior, agency costs and ownership structure. In Corporate governance (pp. 77–132). Gower.
Kayani, G. M., Akhtar, Y., Yiguo, C., Yousaf, T., & Shahzad, S. J. H. (2021). The Role of Regulatory Capital and Ownership Structure in Bank Liquidity Creation: Evidence From Emerging Asian Economies. Sage Open, 11(2), 21582440211006052.
Kinini, D. M., Ocharo, K. N., & Kariuki, P. W. (2023). Do income diversification and capital adequacy affect liquidity creation? A case study of commercial banks in Kenya. Cogent Business and Management, 10(2). https://doi.org/10.1080/23311975.2023.2240082
Laeven, L. (2001). Insider lending and bank ownership: The case of Russia. Journal of Comparative Economics, 29(2), 207–229.
Le-Bao, T., Ho, L., & Lang, D. (2023). Basel III standards and liquidity determinants in Vietnamese commercial bank. Journal of Eastern European and Central Asian Research (JEECAR), 10(3), 401–412.
Levine, R. (2003). The corporate governance of banks. World Bank Policy Research Working.
Lu, W., & Mieno, F. (2020). Impact of foreign entry into the banking sector: The case of Thailand in 1999–2014. Pacific Basin Finance Journal, 64(August), 101424. https://doi.org/10.1016/j.pacfin.2020.101424
Yeddou, N., & Pourroy, M. (2020). Bank liquidity creation: Does ownership structure matter? Quarterly Review of Economics and Finance, 78, 116–131. https://doi.org/10.1016/j.qref.2020.01.003
