Ownership Structure and Bank Risk: The Effects of Crisis, Market Discipline and Regulatory Pressure
Networks Financial Institute Working Paper Series 2108-WP-03
41 Pages Posted: 31 Mar 2018 Last revised: 30 Jul 2019
Date Written: March 27, 2018
Using a large panel of US BHC over the 2001:Q1-2015:Q4, we investigate the risk-taking behaviors of banks within a comparison perspective – between public and private banks – where there exists substantial differences of asymmetry information and agency problems. We document evidence of greater stability of public banks versus their private peers. However, public banks become riskier than private banks during the last crisis. These findings suggest a mixed evidence of risk-taking mitigating role of listing status. Regulatory pressure is effective in limiting risk taking by undercapitalized public banks before, but not during the crisis, casting doubt the effectiveness of regulators during the turmoil times. Public banks with high franchise value expose to risk less than others during the crisis. Debtholders discipline is ineffective in curbing the risk-taking behavior of banks. Our study is of interest for regulators, policymakers who are in search of improving bank risk-taking behavior.
Keywords: bank listing status; risk taking; crisis; market discipline; regulatory pressure
JEL Classification: G21, G28, G34, G38
Suggested Citation: Suggested Citation