The Effect of Ownership Structure on the Prudential Behavior of Banks in Iranian Banking Industry

The purpose of this paper is to investigate the relationship between bank ownership and prudential behavior of banks in Iranian banking industry. Although, the relationship between bank ownership and performance is well studied but there are few studies focusing on the effect of ownership upon banks lending and prudential behavior (Jia 2009). This paper as the first study over Iranians banking system is to tackle this subject using a panel of 12 banks over 2002 – 2008. To this aim the main determinants of prudential behavior as control regressors are considered to provide a much more accurate model to describe the relationship between the prudential behavior and ownership structure of banks. The findings of the study provide the strong evidence to conclude that the lending by states–owned banks has been less prudent than lending by private banks. Furthermore, the results of this study show that the larger banks tend to be more prudent than the smaller ones. Moreover, the results indicate that the less market concentration in Iranian banking industry and the more GDP growth lead to the less prudential behavior. The results also show that the higher percentage of loans in arrears results in the more prudential behavior. Last but not least, the findings of this research show that lending by state–owned banks is becoming more prudent indicating the positive effects of the reforms of Iranian banking system over the last decade