The American Keiretsu and Universal Banks: Investing, Voting and Sitting on Nonfinancials' Corporate Boards
51 Pages Posted: 22 Jan 2003
Date Written: July 21, 2004
There has been a great deal of interest among researchers on the voting rights of nonfinancial firms' stock controlled by Japanese and German banks. In the United States, little attention has been devoted to this issue because banks traditionally have been barred from making equity investments in nonfinancial firms for their own account. Despite this prohibition, American banks control important stakes of the voting rights of nonfinancial firms. The source of these voting rights is the trust business. This paper investigates the equity investments and voting rights that American banks control through their trust business. Following the evidence that German banks use the proxy voting rights they control to place their representatives on the firm's board of directors, we also study whether the voting rights American banks control through their trust business help explain their presence on the boards of nonfinancial firms. We find that, on average, the largest 100 American banks control 10% of the voting rights of S&P 500 nonfinancial firms. We also find that there are several nonfinancial firms in the S&P 500 index in which the top banks altogether control more than 20% of their voting rights and several nonfinancial firms in the country in which they control more than 60% of the firm's voting rights. Our investigation into the presence of American bankers on the boards of nonfinancial corporations shows that, ceteris paribus, bankers are more likely to join the board of a firm in which their bank controls a large voting stake through its trust business.
JEL Classification: G21, G32, L22
Suggested Citation: Suggested Citation