Governance and Bank Valuation
Gerard Caprio Jr.
International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)
UC Berkeley; Milken Institute; National Bureau of Economic Research (NBER)
October 30, 2003
EFA 2004 Maastricht Meetings Paper No. 1699; World Bank Working Paper No. 3202
Which public policies and ownership structures enhance the governance of banks? Is the governance of banks different from other corporations? This paper constructs a new database on the ownership of banks internationally and then assesses the ramifications of ownership, shareholder protection laws, and supervisory/regulatory policies on bank valuations. Except in a few countries with very strong shareholder protection laws, banks are not widely held, but rather families or the State tend to control banks. We find that (i) larger cash-flow rights by the controlling owner boosts valuations, (ii) stronger shareholder protection laws increase valuations, and (iii) greater cash-flow rights mitigate the adverse effects of weak shareholder protection laws on bank valuations. These results are consistent with the views that expropriation of minority shareholders is important internationally, that laws can restrain this expropriation, and concentrated cash-flow rights represent an important mechanism for governing banks. Finally, the evidence does not support the view that empowering official supervisory and regulatory agencies will increase the market valuation of banks.
Number of Pages in PDF File: 48
JEL Classification: G21, G34, K22, G28working papers series
Date posted: January 2, 2004
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