Multiple Banking Relationships, Managerial Ownership Concentration and Firm Value: A Simultaneous Equations Approach
The Quarterly Review of Economics and Finance, 52 (2012), 286-297.
Posted: 27 Jan 2004 Last revised: 9 Apr 2020
Date Written: July 1, 2012
This paper examines how the number of banking relationships affects the interaction between managerial ownership and firm performance, and sheds light on the conditions under which banking relationships play a role in alleviating shareholder-manager conflicts. Our results provide several interesting insights. We document that bank monitoring has substantial value when managers are improperly incentivized, but that it becomes less important when managers are properly incentivized. There is a substitution effect between the value-increasing benefits of managerial ownership and bank monitoring. We also find that any existing free-riding concerns from having too many banking relationships are problematical only when Tobin’s Q is high and managerial ownership is high.
Keywords: Bank Monitoring, Bank Relationships, Managerial Incentive, Corporate Governance.
JEL Classification: G32, G34, G30
Suggested Citation: Suggested Citation