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Insider Ownership and Risk–taking Behaviour at Bank Holding Companies
Author(s) -
Lee Seok Weon
Publication year - 2002
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00458
Subject(s) - insider , shareholder , business , incentive , agency cost , volatility (finance) , principal–agent problem , stock (firearms) , balance sheet , monetary economics , event study , asset (computer security) , finance , corporate governance , economics , microeconomics , mechanical engineering , paleontology , context (archaeology) , computer security , biology , political science , computer science , engineering , law
This paper investigates the relationship between bank ownership structure and risk–taking. We find robust evidence that the greater risk taking incentives of stockholder controlled banks (compared to managerially controlled banks) are more pronounced for the set of banks with larger asset size, lower stock–return volatility, and lower balance–sheet–risk characteristics. Considering that the probability of failure for these banks is relatively low, these results may suggest that the efficacy of insider ownership in mitigating the agency problem could be affected by the costs perceived by the managers associated with aligning their interests with outside stockholders (i.e., the expected loss of benefits from control of the firm in the event of failure).