The Effect of UK Building Society Conversion on Pricing Behaviour

Cass Business School Faculty of Finance Working Paper

21 Pages Posted: 19 May 2006

See all articles by Shelagh Heffernan

Shelagh Heffernan

City University London - Sir John Cass Business School

Date Written: March 2003

Abstract

to plc bank status - quoted on the stock market. Seven mutuals converted in the period 1995 to 2000. This study examines the pricing behaviour of the converted mutuals and remaining building societies to address the question of whether a change in ownership structure caused managers of the new stock banks to place profit/shareholder concerns ahead of the interests of the customer/owners of mutual building societies. The results of an econometric study using monthly interest rate data (1995-2001) on deposit products and mortgages confirm that managers began to set prices which would improve profits, at the expense of depositors and mortgagees. Deposit/mortgage rates were found to be permanently lower/higher post conversion, the converts responded more rapidly to changes in the market rate of interest, and the new banks offered proportionately more rip-offs than the remaining building societies.

Keywords: Mutuals, converted banks, managerial incentives, bargains, rip-offs

Suggested Citation

Heffernan, Shelagh A., The Effect of UK Building Society Conversion on Pricing Behaviour (March 2003). Available at SSRN: https://ssrn.com/abstract=903330 or http://dx.doi.org/10.2139/ssrn.903330

Shelagh A. Heffernan (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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