Final Verion for Developing Economies (SSCI).doc

Final Version for Developing Economies (SSCI)
Ownership and Non-performing Loans:
Evidence from Taiwan’s Banks
Jin-Li Hu, Yang Li, and Yung-Ho Chiu* Jin-Li Hu is Associate Professor, Institute of Business and Management, National Chiao-Tung University. Yang Li is Associate Professor, Department of Applied Economics, National University of Kaohsiung. Yung-Ho Chiu is Professor, Department of Economics, Soochow University. The theoretical part is from a research project by the first author, which is financially supported by Taiwan’s National Science Council (NSC-90-2415-H-032-006). We are indebted to Hung-Ju Chen, Hsiao-Ru Chen, Wei-Kai Chu, Shih-Rong Li, Fumiko Takeda, Leonard . Wang, and Ya-Hwei Yang for ments. The authors are also grateful to seminar participants at the Taiwan Economic Association Meeting, the Conference on Asian Financial Crisis, IV, and National University of Kaohsiung. The usual disclaimer applies.
Abstract
We first derive a theoretical model to predict that the relation between non-performing loan ratios and government shareholdings can be downward-sloping, upward-sloping, U-shaped, and inversely U-shaped. An increase in the government’s shareholding does facilitate political lobbying. On the other hand, the private shareholding will induce more non-performing loans to be manipulated by corrupt private owners. We adopt a panel data set with 40 mercial banks during 1996-1999 for empirical analysis. The rate of non-performing loans decreases as the government shareholding in a bank goes higher (up to percent), while the rate thereafter increases. Banks’ sizes are negatively related to the rate of non-performing loans. Rates of non-performing loans are shown to steadily increase from 1996 to 1999. Banks established after deregulation, on average, have a lower rate of non-performing loans than those established before deregulation.
Key words: mixed ownership, political lobbying, corrupt private sector, immature civil society, Asian f