How does ownership structure invfluence bank risk? : Analyzing the role of managerial incentives
López-Puertas Lamy, Mónica (Universidad Carlos III de Madrid)
Universitat Autònoma de Barcelona. Departament d'Empresa

Imprint:	Universitat Autònoma de Barcelona. Departament d'Economia de l'Empresa 2012
Description:	67 p.
Abstract:	This paper analyzes how ownership concentration and managerial incentives influences bank risk for a large sample of US banks over the period 1997-2007. Using 2SLS simultaneous equations models, we show that ownership concentration has a positive total effect on bank risk. This is the result of a positive direct effect, which reflects monitoring and opportunistic behavior, and a negative indirect effect, which works through the design of managerial incentive contracts and reflects shareholder preferences toward risk. Large shareholders reduce bank risk by reducing the sensitivity of CEO wealth to stock volatility (Vega) and by increasing the CEO pay-performance sensitivity (Delta). In addition, we show that the direct and indirect effect of ownership concentration on bank risk depends on the type of the largest shareholder (a family, a bank, a corporation or an institutional investor), as well as, on the total shareholding held by each type as a group. Our results suggest that the positive relation between ownership concentration and risk is not the result of preferences towards more risk. Rather, they point at opportunistic behavior of large shareholders.
Rights:	L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons:
Language:	Anglès
Series:	Departament d'Economia de l'Empresa. Documents de treball
Series:	Document de treball (Universitat Autònoma de Barcelona. Departament d'Economia de l'Empresa) ; 12/8
Document:	Working paper
Subject:	Bancs ; Estats Units d'Amèrica

67 p, 688.8 KB

The record appears in these collections:
Research literature > Working papers > Department of Business. Working papers