Bank Ownership Structure, Market Discipline and Risk: Evidence from a Sample of Privately Owned and Publicly Held European Banks

27 Pages Posted: 21 Jan 2009

See all articles by Thierno Barry

Thierno Barry

Université de Limoges, LAPE

Laetitia Lepetit

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE)

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Date Written: December 21, 2008

Abstract

The objective of this paper is to analyze the influence of ownership structure on the risk taking behavior of European commercial banks. We consider five categories of shareholders (managers/directors, institutional investors, non financial companies, individuals and families, and banks). Controlling for various factors, we find that asset risk is lower for banks where a higher proportion of total stocks is held by families and individuals who have less diversified portfolios. We also find that the probability of default of banks is higher when non financial companies or institutional investors hold a higher proportion of total equity. However, these results do not hold for listed banks in which non financial companies hold higher stakes suggesting that the market might be limiting the risk-taking incentives of such shareholders. We further show that market forces might be more effective in influencing risk in banks with a higher involvement of non financial companies than in banks with a higher portion of stock held by institutional investors.

Keywords: Ownership structure, bank risk, European banks, Market Discipline

JEL Classification: G21, G32

Suggested Citation

Barry, Thierno and Lepetit, Laetitia and Tarazi, Amine, Bank Ownership Structure, Market Discipline and Risk: Evidence from a Sample of Privately Owned and Publicly Held European Banks (December 21, 2008). Available at SSRN: https://ssrn.com/abstract=1331154 or http://dx.doi.org/10.2139/ssrn.1331154

Thierno Barry

Université de Limoges, LAPE ( email )

5 rue Félix Eboué
BP 3127
Limoges Cedex 1, 87031
France

Laetitia Lepetit

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE) ( email )

5 rue Felix Eboue
BP 3127
Limoges Cedex 1, 87031
France
+33555149213 (Phone)

HOME PAGE: http://www.unilim.fr/lape/

Amine Tarazi (Contact Author)

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
143
Abstract Views
788
rank
224,407
PlumX Metrics