Insider ownership, power, and bank value
DOI:
https://doi.org/10.18533/jefs.v4i04.243Keywords:
bank, value, insider ownership, insider powerAbstract
This paper examines the influence of insider ownership and power on bank value. We measure insider ownership as the fraction of the bank’s common stock owned by its directors and officers as a group, and insider power using the Milnor and Shapley (1978) power index for oceanic voting games. Using a sample of U.S. banks, we find that insider ownership is positively related to bank value, while insider power is negatively related to bank value. These results are consistent with the agency theory literature. To the extent that regulators want to increase bank value, they should encourage equity ownership by bank insiders and outside blockholders.References
Allen, L., Cebenoyan, A.S., (1991). Bank acquisitions and ownership structure: Theory and evidence. Journal of Banking and Finance 15, 425-448. http://dx.doi.org/10.1016/0378-4266(91)90076-X
Basu, N., Paeglis, I., Rahnamaei, M., (2016). Multiple blockholders, power, and firm value. Journal of Banking & Finance 66, 66-78. http://dx.doi.org/10.1016/j.jbankfin.2016.01.001
Berger, A.N., Bouwman, C.H.S., (2009). Bank liquidity creation. Review of Financial Studies 22, 3779-3837. http://dx.doi.org/10.1093/rfs/hhn104
Berle, A., Means, G., (1932). The Modern Corporation and Private Property. New York: MacMillan.
Bharath, S.T., Jayaraman, S., Nagar, V., (2013). Exit as governance: An empirical analysis. Journal of Finance 68, 2515-2547. http://dx.doi.org/10.1111/jofi.12073
Caprio, G., Laeven, L., Levine, R., (2007). Governance and bank valuation. Journal of Financial Intermediation 16, 584-617. http://dx.doi.org/10.1016/j.jfi.2006.10.003
Cheng, P., Su, L., Zhu, X., (2012). Managerial ownership, board monitoring and firm performance in a family-concentrated corporate environment. Accounting and Finance 52, 1061-1081. http://dx.doi.org/10.1111/j.1467-629X.2011.00448.x
Cheung, W.K., Wei, K.C., (2006). Insider ownership and corporate performance: Evidence from the adjustment cost approach. Journal of Corporate Finance 12, 906-925. http://dx.doi.org/10.1016/j.jcorpfin.2006.02.002
Cho, M.H., (1998). Ownership structure, investment, and the corporate value: An empirical analysis. Journal of Financial Economics 47, 103-121. http://dx.doi.org/10.1016/S0304-405X(97)00039-1
de Haan, J., Vlahu, R., (2016). Corporate governance of banks: A survey. Journal of Economic Survey 30, 228-277. http://dx.doi.org/10.1111/joes.12101
Demsetz, H., (1983). The structure of ownership and the theory of the firm. Journal of Law & Economics 26, 375-390. http://dx.doi.org/10.1086/467041
Demsetz, H., Lehn, K., (1985). The structure of corporate ownership: Causes and consequences. Journal of Political Economy 93, 1155-1177. http://dx.doi.org/10.1086/261354
Demsetz, H., Villalonga, B., (2001). Ownership structure and corporate performance. Journal of Corporate Finance 7, 209-233. http://dx.doi.org/10.1016/S0929-1199(01)00020-7
Denis, D.J., Denis, D.K., Sarin, A., (1997). Agency problems, equity ownership, and corporate diversification. Journal of Finance 52, 135-160. http://dx.doi.org/10.1111/j.1540-6261.1997.tb03811.x
DeYoung, R., Spong, K., Sullivan, R.J., (2001). Who's minding the store? Motivating and monitoring hired managers at small, closely held commercial banks. Journal of Banking and Finance 25, 1209-1243. http://dx.doi.org/10.1016/S0378-4266(00)00127-8
Diamond, D.W., (1984). Financial intermediation and delegated monitoring. Review of Economic Studies 51, 393-414. http://dx.doi.org/10.2307/2297430
Diamond, D.W., Dybvig, P.H., (1983). Bank runs, deposit insurance, and liquidity. Journal of Political Economy 91, 401-419. http://dx.doi.org/10.1086/261155
Dlugosz, J., Fahlenbrach, R., Gompers, P., Metrick, A., (2006). Large blocks of stock: Prevalence, size, and measurement. Journal of Corporate Finance 12, 594-618. http://dx.doi.org/10.1016/j.jcorpfin.2005.04.002
Edmans, A., (2014). Blockholders and corporate governance. Annual Review of Financial Economics 6, 23-50. http://dx.doi.org/10.1146/annurev-financial-110613-034455
Fang, Y., Hasan, I., Marton, K., Waisman, M., (2014). Bank valuation in new EU member countries. Economic Systems 38, 55-72. http://dx.doi.org/10.1016/j.ecosys.2013.07.002
Glassman, C.A., Rhoades, S.A., (1980). Owner vs. manager control effects on bank performance. Review of Economics and Statistics 62, 263-270. http://dx.doi.org/10.2307/1924753
Griffith, J.M., Fogelberg, L., Weeks, H.S., (2002). CEO ownership, corporate control, and bank performance. Journal of Economics and Finance 26, 170-183. http://dx.doi.org/10.1007/BF02755984
Gulamhussen, M.A., Pinheiro, C., Sousa, R., (2012). Journal of International Financial Management and Accounting 23, 121-153. http://dx.doi.org/10.1111/j.1467-646X.2012.01056.x
Hadlock, C., Houston, J., Ryngaert, M., (1999). The role of managerial incentives in bank acquisitions. Journal of Banking and Finance 23, 221-249. http://dx.doi.org/10.1016/S0378-4266(98)00092-2
Himmelberg, C.P., Hubbard, R.G., Palia, D., (1999). Understanding the determinants of managerial ownership and the link between ownership and performance. Journal of Financial Economics 53, 353-384. http://dx.doi.org/10.1016/S0304-405X(99)00025-2
Holderness, C.G., Kroszner, R.S., Sheehan, D.P., (1999). Were the good old days that good? Changes in managerial stock ownership since the Great Depression. Journal of Finance 54, 435-469. http://dx.doi.org/10.1111/0022-1082.00114
Hu, Y., Zhou, X., (2008). The performance effect of managerial ownership: Evidence from China. Journal of Banking and Finance 32, 2099-2110. http://dx.doi.org/10.1016/j.jbankfin.2007.12.047
Hughes, J.P., Lang, W.W., Mester, L.J., Moon, C.G., Pagano, M.S., (2003). Do bankers sacrifice value to build empires? Managerial incentives, industry consolidation, and financial performance. Journal of Banking and Finance 27, 417-447. http://dx.doi.org/10.1016/S0378-4266(02)00385-0
Jensen, M.C., (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review 76, 323-329.
Jensen, M.C., Meckling, W.H., (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics 3, 305-360. http://dx.doi.org/10.1016/0304-405X(76)90026-X
Kim, E.H., Lu, Y., (2011). CEO ownership, external governance, and risk-taking. Journal of Financial Economics 102, 272-292. http://dx.doi.org/10.1016/j.jfineco.2011.07.002
Konijn, S., Kraussl, R., Lucas, A., (2011). Blockholder dispersion and firm value. Journal of Corporate Finance 17, 1330-1339. http://dx.doi.org/10.1016/j.jcorpfin.2011.06.005
Laeven, L., (2013). Corporate governance: What's special about banks? Annual Review of Financial Economics 5, 63-92. http://dx.doi.org/10.1146/annurev-financial-021113-074421
Loderer, C., Martin, K., (1997). Executive stock ownership and performance tracking faint traces. Journal of Financial Economics 45, 223-255. http://dx.doi.org/10.1016/S0304-405X(97)00017-2
McConnell, J., Servaes, H., (1990). Additional evidence on equity ownership and corporate value. Journal of Financial Economics 27, 595-612. http://dx.doi.org/10.1016/0304-405X(90)90069-C
McConnell, J., Servaes, H., Lins, K., (2008). Changes in insider ownership and changes in the market value of the firm. Journal of Corporate Finance 14, 92-106. http://dx.doi.org/10.1016/j.jcorpfin.2008.02.001
Mehran, H., Thakor, A., (2011). Bank capital and value in the cross-section. Review of Financial studies 24, 1019-1067. http://dx.doi.org/10.1093/rfs/hhq022
Milnor, J.W., Shapley, L.S., (1978). Values of large games II: Oceanic games. Mathematics of Operations Research 3, 290-307. http://dx.doi.org/10.1287/moor.3.4.290
Morck, R., Shleifer, A., Vishny, R.W., (1988). Management ownership and market valuation: An empirical analysis. Journal of Financial Economics 20, 293-315. http://dx.doi.org/10.1016/0304-405X(88)90048-7
Short, H., Keasey, K., (1999). Managerial ownership and the performance of firms: Evidence from the UK. Journal of Corporate Finance 5, 79-101. http://dx.doi.org/10.1016/S0929-1199(98)00016-9
Stulz, R.M., (1988). Managerial control of voting rights: Financing policies and the market for corporate control. Journal of Financial Economics 20, 25-54. http://dx.doi.org/10.1016/0304-405X(88)90039-6
Westman, H., (2011). The impact of management and board ownership on profitability in banks with different strategies. Journal of Banking and Finance 35, 3300-3318. http://dx.doi.org/10.1016/j.jbankfin.2011.05.013
Downloads
Published
Issue
Section
License
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) after official publication, as it can lead to productive exchanges as well as greater citation of published work (See The Effect of Open Access).
