The Impact of Management and Board Ownership on Profitability in Banks with Different Strategy

Abstract:     
This study combines the ownership and diversification literature and shows that the agency problem varies across traditional, diversified and non-traditional banks. In a sample of European banks, I find that management ownership has a positive impact on profitability in non-traditional banks, whereas board ownership has a positive impact on profitability in traditional banks. These findings indicate that management ownership is important in opaque banks which are difficult to monitor, whereas board ownership is important in banks where the governmental safety-net reduces the monitoring incentives of depositors, but which are not too complex or opaque for the board to monitor.

Number of Pages in PDF File: 67

Keywords: banks, management ownership, board ownership, traditional vs. non-traditional banking operations, diversification

JEL Classification: G2, G32, G34, L25

working papers series