Competition and Agency Problems within Banks: Evidence from Insider Lending

60 Pages Posted: 30 Apr 2020 Last revised: 3 Feb 2021

See all articles by Mattia Girotti

Mattia Girotti

Banque de France

Federica Salvadè

PSB Paris School of Business

Date Written: December 14, 2020

Abstract

This paper studies whether greater competition can mitigate agency problems within banks. We measure the intensity of the agency conflict within a bank by the volume of loans that the bank lends to its insiders (e.g., executives). We first check that these loans are a form of private benefit. By exploiting interstate branching deregulation, we then show that banks react to greater competition by reducing insider lending, especially when the entry of new competitors may more strongly affect bank profitability. Results are robust to using various identification approaches and alternative indicators of agency conflict. We conclude that competitive pressure reduces managerial self-dealing.

Keywords: Banks, Agency Problems, Private Benefits, Competition, Insider Loans

JEL Classification: G21, G28, G38

Suggested Citation

Girotti, Mattia and Salvadè, Federica, Competition and Agency Problems within Banks: Evidence from Insider Lending (December 14, 2020). Available at SSRN: https://ssrn.com/abstract=3550108 or http://dx.doi.org/10.2139/ssrn.3550108

Mattia Girotti (Contact Author)

Banque de France ( email )

Paris
France

Federica Salvadè

PSB Paris School of Business ( email )

59 rue Nationale
Paris, 75013
France

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