Ownership Structure, Revenue Diversification and Insolvency Risk in European Banks

19 Pages Posted: 31 Jan 2010 Last revised: 17 Mar 2011

See all articles by Sarah Sanya

Sarah Sanya

International Monetary Fund

Simon Wolfe

University of Southampton - School of Management; University of Southampton - Southampton Business School

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2010

Abstract

In this paper the link between ownership structure, revenue diversification and insolvency risk is investigated. Using a panel dataset of 153 listed European banks over the period 2000-2007, and the three stage least squares (3SLS) estimation technique, we find that revenue diversification reduces insolvency risk in banks that have a large shareholder. This is because, the need for the majority shareholder to protect its wealth is often accomplished through its ability to influence strategic investment decisions positively. The results are robust to an array of controls including alternative methodology, sample and variable specifications. The results are also robust to controls for the regulatory environment that banks operate in. The link identified between ownership concentration and revenue diversification is a novel way of analyzing the impact of the latter on insolvency risk in banks.

Keywords: European banks, Revenue diversification, Corporate Governance, Ownership structure, Insolvency risk

JEL Classification: G21, G28, G32, G33

Suggested Citation

Sanya, Sarah O. and Wolfe, Simon, Ownership Structure, Revenue Diversification and Insolvency Risk in European Banks (March 1, 2010). Available at SSRN: https://ssrn.com/abstract=1102626 or http://dx.doi.org/10.2139/ssrn.1102626

Sarah O. Sanya (Contact Author)

International Monetary Fund ( email )

700 19th Street, NW
Washington, DC 22209
United States
2026239598 (Phone)

Simon Wolfe

University of Southampton - School of Management ( email )

Highfield
Southampton S017 1BJ, Hampshire SO17 1BJ
United Kingdom

University of Southampton - Southampton Business School ( email )

Southampton, SO17 1BJ
United Kingdom

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