Publicly-Traded Versus Privately-Held: Implications for Bank Profitability, Growth, Risk, and Accounting Conservatism*

45 Pages Posted: 16 Sep 2004

See all articles by Craig Nichols

Craig Nichols

Syracuse University

James Michael Wahlen

Indiana University - Kelley School of Business - Department of Accounting

Matthew M. Wieland

Miami University of Ohio - Department of Accountancy

Date Written: February 4, 2005

Abstract

Public and private banks differ along dimensions of control structure and capital market access. We develop and test predictions about the effects that these differences have on banks' profitability, growth, risk, and financial reporting. Our empirical results are generally consistent with our predictions. We predict and find that public banks have lower profitability but faster growth in assets and equity than private banks, after controlling for size. We find no reliable differences in accounting-based risk metrics across public and private banks. We predict and find results that suggest that stakeholders in public banks demand greater degrees of accounting conservatism relative to private banks. For example, we find that public banks recognize more timely earnings declines but less timely earnings increases than private banks. We also find that public banks exhibit more conservative accounting for loan losses. Loan loss provisions are larger and more timely, relative to exogenous indicators of probable credit losses, for public banks than for private banks. Our results inform accounting and finance academics, as well as bank managers, auditors, and regulators, about the effects of ownership structure on bank profitability, growth, risk, and accounting conservatism. The results highlight the implications of public and private banks' tradeoffs of potential agency costs associated with greater separation of ownership and control against the benefits of capital market access.

Keywords: Banks, Agency Problems, Accounting, Conservatism, Profitability, Risk, Growth, Ownership Structure

JEL Classification: G21, G32, M41

Suggested Citation

Nichols, Craig and Wahlen, James Michael and Wieland, Matthew M., Publicly-Traded Versus Privately-Held: Implications for Bank Profitability, Growth, Risk, and Accounting Conservatism* (February 4, 2005). Available at SSRN: https://ssrn.com/abstract=591663 or http://dx.doi.org/10.2139/ssrn.591663

Craig Nichols

Syracuse University ( email )

900 S. Crouse Avenue
Syracuse, NY 13244-2130
United States

James Michael Wahlen (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2658 (Phone)
812-855-8679 (Fax)

Matthew M. Wieland

Miami University of Ohio - Department of Accountancy ( email )

310 Laws Hall
Oxford, OH 45056-1675
United States

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