Publicly Traded versus Privately Held Commercial Banks: Capital Access, Growth and Financial Performance

52 Pages Posted: 31 Jul 2015 Last revised: 11 Aug 2015

See all articles by Robert DeYoung

Robert DeYoung

University of Kansas School of Business

Lei Li

Board of Governors of the Federal Reserve System

Date Written: August 10, 2015

Abstract

We empirically examine a seldom-tested nexus of relationships that is fundamental to corporate finance theory: that having access to public capital markets may allow firms to grow faster, but may not be value-enhancing due to investment distortions arising from owner-manager conflicts. We use a large matched sample of publicly traded and privately held U.S. commercial banking companies between 1984 and 2012. We gain identification by exploiting (a) the natural exogeneity of banks’ growth opportunities and (b) the life-cycle characteristics of private versus and public firms. We find that public banks are more responsive than private banks to new growth opportunities, but this advantage manifests itself only during local economic downturns when internal capital generation slows. Faster growth is accompanied by relatively higher accounting returns at public banks, an indication that the value increment from faster growth more than offsets any related principal-agent inefficiencies.

Suggested Citation

DeYoung, Robert and Li, Lei, Publicly Traded versus Privately Held Commercial Banks: Capital Access, Growth and Financial Performance (August 10, 2015). Available at SSRN: https://ssrn.com/abstract=2637529 or http://dx.doi.org/10.2139/ssrn.2637529

Robert DeYoung

University of Kansas School of Business ( email )

Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States
785-864-1806 (Phone)

Lei Li (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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