Risk-Taking Behavior in the U.S. Thrift Industry: Ownership Structure and Regulatory Changes

33 Pages Posted: 11 Nov 2008

See all articles by John D. Knopf

John D. Knopf

University of Connecticut - Department of Finance

John L. Teall

Pace University - Lubin School of Business

Date Written: November 1994

Abstract

This paper is concerned with the relationship between ownership structure and risk taking in the U.S. thrift industry along with the impact of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) on this relationship. Our results, based on balance sheet and market measures of risk, suggest that insider controlled thrifts were more likely to engage in risk taking behavior prior to 1989 than were diversely held institutions. FIRREA seems to have curtailed much of the risk taking behavior of these institutions; in fact, some evidence suggests that insider controlled thrifts may have actually engaged in less risk taking behavior than their diversely held counterparts after 1989. We find inverse relationships between risk-taking behavior and levels of institutional shareholdings during all periods. This finding, along with the finding that increased risk-taking does not increase returns to thrift shareholders, suggests that the motive for risk-taking behavior on the part of insider held thrifts may not have been the maximization of the â¬Soptionâ¬? value associated with shares as reported elsewhere. We do find evidence that entrenched managers may have generated significant private benefits for themselves.

Suggested Citation

Knopf, John D. and Teall, John L., Risk-Taking Behavior in the U.S. Thrift Industry: Ownership Structure and Regulatory Changes (November 1994). NYU Working Paper No. FIN-94-040, Available at SSRN: https://ssrn.com/abstract=1299475

John D. Knopf (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

John L. Teall

Pace University - Lubin School of Business ( email )

1 Pace Plaza
New York, NY 10038-1502
United States
Not available (Phone)
Not available (Fax)

HOME PAGE: http://webpage.pace.edu/jteall

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
70
Abstract Views
1,433
Rank
594,111
PlumX Metrics