Institutional Ownership, Diversification, and Riskiness of Bank Holding Companies
31 Pages Posted: 6 Jul 2013
Date Written: August 2013
We examine the relationship among the level and stability of institutional ownership, diversification, and riskiness of publicly traded bank holding companies. We find that large and stable institutional ownership is associated with a higher (lower) level of geographic, revenue, and nontraditional banking (asset) diversification and lower risk, suggesting that institutional investors are prudent and favor risk‐reducing diversification strategies. The association between institutional ownership level and diversification is more pronounced under deregulation and during the crisis, suggesting a substitution effect between regulation and market discipline, and a greater level of monitoring and/or advising by institutional investors during the crisis, respectively.
Keywords: BHC, diversification, institutional ownership, risk, market discipline institutional ownership, diversification and riskiness of bank holding companies
JEL Classification: G21, G32
Suggested Citation: Suggested Citation