Shareholder Diversification and Bank Risk-Taking

56 Pages Posted: 21 May 2013 Last revised: 24 Dec 2014

See all articles by Yamileh García-Kuhnert

Yamileh García-Kuhnert

University of Manchester - Manchester Business School

Maria‐Teresa Marchica

University of Manchester - Alliance Manchester Business School

Roberto Mura

University of Manchester - Manchester Business School

Date Written: December 22, 2014

Abstract

Using the entire universe of Bankscope and Amadeus Top 250,000 we construct the portfolios of shareholders who hold equity stakes in publicly traded and privately held European banks for each year over the period 1999–2008. We show that about 62% of banks’ ultimate largest shareholders are diversified investors, holding on average equity investments from thirteen companies in their portfolio. We exploit this heterogeneity to investigate the impact of their portfolio diversification on bank risk-taking. Our results show that the relation between portfolio diversification and bank risk-taking is both statistically significant and economically sizeable. Overall, these findings contribute to the literature by studying for the first time a specific channel through which financial development, in the form of bank shareholders’ diversification, affects the banks’ risk-taking decisions.

Keywords: largest shareholder portfolio diversification, bank risk-taking, capital allocation efficiency

JEL Classification: G11, G15, G21, G32, O16

Suggested Citation

García-Kuhnert, Yamileh and Marchica, Maria‐Teresa and Mura, Roberto, Shareholder Diversification and Bank Risk-Taking (December 22, 2014). Available at SSRN: https://ssrn.com/abstract=2267962 or http://dx.doi.org/10.2139/ssrn.2267962

Yamileh García-Kuhnert

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Maria‐Teresa Marchica

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Roberto Mura (Contact Author)

University of Manchester - Manchester Business School ( email )

Crawford House
Oxford Road
Manchester, Lancashire M13 9PL
United Kingdom
+44 (0) 161 275 4023 (Fax)

HOME PAGE: http://www.robertomura.com

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