Ownership Structure, Revenue Diversification and Insolvency Risk in European Banks

19 Pages Posted: 22 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, 2011

Abstract

The financial crisis brought to light weakness in the assessments of risks and vulnerabilities in banks. Consequently, an insight into how the ownership structure of a bank affects investment decisions, performance and ultimately insolvency risk - the focus of this paper - is crucial. Our results show revenue diversification reduces insolvency risk in banks with concentrated ownership structure. This is because a large shareholder influences strategic decisions as a means to protect its personal wealth. 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. The results also have important policy implications for regulators interested in understanding the role corporate governance in banks plays in mitigating systemic risk.

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, 2011). Available at SSRN: https://ssrn.com/abstract=1787476 or http://dx.doi.org/10.2139/ssrn.1787476

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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