The American Keiretsu and Universal Banks: Investing, Voting and Sitting on Nonfinancials' Corporate Boards

Posted: 26 Aug 2005

See all articles by João A. C. Santos

João A. C. Santos

Federal Reserve Bank of New York

Adrienne S. Rumble

Federal Reserve Bank of New York - Research Group

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Abstract

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, the paper also studies whether the voting rights American banks control through their trust business help explain their presence on U.S. firms' boards.

We find that on average the largest 100 American banks control 10% of the voting rights of S&P 500 firms. We also find that there are several firms in the S&P 500 index in which the top banks altogether control more than 20% of their voting rights and several firms in the country in which these banks control more than 60% of their voting rights.

Our investigation into the presence of American bankers on corporate boards shows that bankers are more likely to join the boards of firms in which they control a large voting stake. We also find that banks' lending relationships help explain bankers' board memberships.

Our results further show that bankers who have both a voting stake in a firm and a lending relationship with it have a higher likelihood of joining the firm's board of directors.

JEL Classification: G21, G32, L22

Suggested Citation

Santos, João A. C. and Rumble, Adrienne S., The American Keiretsu and Universal Banks: Investing, Voting and Sitting on Nonfinancials' Corporate Boards. Journal of Financial Economics 80, 419-454, 2006., Available at SSRN: https://ssrn.com/abstract=784665 or http://dx.doi.org/10.2139/ssrn.362040

João A. C. Santos (Contact Author)

Federal Reserve Bank of New York ( email )

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HOME PAGE: HTTP://WWW.NEWYORKFED.ORG/RMAGHOME/ECONOMIST/SANTOS/CONTACT.HTML

Adrienne S. Rumble

Federal Reserve Bank of New York - Research Group ( email )

33 Liberty Street
New York, NY 10045
United States

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