Multiple Banking Relationships, Managerial Ownership Concentration and Firm Value: A Simultaneous Equations Approach

The Quarterly Review of Economics and Finance, 52 (2012), 286-297.

Quarterly Review of Economics and Finance, Vol. 52, 2012

Posted: 27 Jan 2004 Last revised: 9 Apr 2020

See all articles by Hai-Chin Yu

Hai-Chin Yu

Chung Yuan Christian University

Ben J. Sopranzetti

Rutgers Business School: Newark and New Brunswick

Cheng-Few Lee

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics

Date Written: July 1, 2012

Abstract

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

Yu, Hai-Chin and Sopranzetti, Ben J. and Lee, Cheng-Few, Multiple Banking Relationships, Managerial Ownership Concentration and Firm Value: A Simultaneous Equations Approach (July 1, 2012). The Quarterly Review of Economics and Finance, 52 (2012), 286-297. , Quarterly Review of Economics and Finance, Vol. 52, 2012, Available at SSRN: https://ssrn.com/abstract=488742

Hai-Chin Yu (Contact Author)

Chung Yuan Christian University ( email )

22 Pu-Jen,Pu-chung Li
Chung-Li, Taiwan 32023
Taiwan
886 3 265 5209 (Phone)
886 3 265 5299 (Fax)

Ben J. Sopranzetti

Rutgers Business School: Newark and New Brunswick ( email )

100 Rockafeller Rd
Piscataway, NJ 08854
United States

Cheng-Few Lee

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics ( email )

111 Washington Avenue
Newark, NJ 07102
United States
732-445-3907 (Phone)
732-445-5927 (Fax)

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