The Role of Ownership Structure and Regulatory Environment in Bank Corporate Governance

Westman, Hanna

doi:10.2139/ssrn.1435041

Cited by 6 publications

(3 citation statements)

References 48 publications

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“…Additionally, the type of company in which they invest will influence the activism of shareholders. According to Westman (2010), this is especially the case for financial institutions, as the legal protection of bank depositors may encourage risk-taking by the bank's managers.…”

Section: Ownership Structure and Shareholder Activismmentioning

confidence: 99%

Ownership concentration of three large Belgian banks during the crisis

Deudon

Marques

Sarens

2015

Corporate Governance

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Purpose – In this paper, two different ownership structures in Belgian banks are studied to see whether this had an impact on how these banks went through the financial crisis of 2007-2008. On the one hand, there is the concentrated ownership structure with a number of major shareholders, while on the other hand, the ownership can be really dispersed with no shareholder having a significantly large stake and ability to influence management’s decisions. Design/methodology/approach – The authors study three large Belgians banks. Dexia and KBC followed the first model (concentrated ownership), while Fortis’ ownership was really dispersed since the year 2000. The authors perform several interviews with people involved with these banks during the crisis and analyze several external sources of information. Findings – The mitigating impact that major shareholders could have had on the – in hindsight – wrong decisions of Belgian banks’ top managers is found to be very limited. Therefore, it can be concluded that the dispersed ownership structure of Fortis was not an important factor in its collapse. Nevertheless, a concentrated ownership structure has been found out to help in case of financial distress, mainly because governments will be more inclined to participate to bailouts when a sound rescue strategy, elaborated with the help of a stable and concentrated ownership structure, is present. Originality/value – By performing interviews, the authors get an insider’s point of view of these banks during the crisis.

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Section: Ownership Structure and Shareholder Activismmentioning

confidence: 99%

Ownership concentration of three large Belgian banks during the crisis

Deudon

Marques

Sarens

2015

Corporate Governance

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“…One study suggests that increasing the share of management compensation derived from salary and bonuses contributes to reduced bank risk (Palia-Porter 2004). Other research concludes that linking bank executives' pay to equities' values makes it more likely that they will take adverse actions such as potentially value-reducing mergers (Williams-Michael-Rao 2008) or generally engage in greater risk taking (Chen et al 2006). Others reach contrary conclusions on whether greater pay-performance sensitivity increases the risk of value-reducing mergers (Bliss-Rosen 2001;Minnick et al 2009, andHagendorff-Vallascas 2010).…”

Section: Evidence On the Relationship Between Bank Management Compensmentioning

confidence: 99%

“…In addition, there is a finding of a negative relationship between greater pay-performance sensitivity and variability of returns (Harjoto-Mullineaux 2003). There is also evidence that risk-taking behavior depends on the degree of management control generally exercised by equity holders (Saunders et al 1990;Gropp-Köhler 2010) and by a few large equity holders (Laeven-Levine 2009;Westman 2010) and on whether management compensation is deferred (Bolton et al 2010).…”

Section: Evidence On the Relationship Between Bank Management Compensmentioning

confidence: 99%

Financial Market Regulation

Tatom¹

2011

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Regulation of Bank Management Compensation

VanHoose

2010

Financial Market Regulation

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Since passage of the Economic Stabilization Act of 2008, the government has been explicitly and implicitly regulating the compensation of top managers at a number of U.S. banks. In addition, bank regulators have added evaluations of bank management compensation packages to the list of factors taken into account in supervisory safety-andsoundness examinations, and pending legislation would require the Federal Reserve to establish explicit standards for evaluating the risk implications of bankers' pay. Furthermore, the Federal Deposit Insurance Corporation has proposed incorporating the structure of bank management compensation into the determination of banks' deposit insurance premiums. This policy brief surveys the academic literature on the empirical relationship between bank management compensation and risk, discusses theoretical considerations that may underlie the mixed evidence regarding this relationship, and assesses potential pitfalls associated with actual and proposed regulations of the structure of management compensation in the banking industry. The main conclusion is that there is neither persuasive empirical evidence nor an unambiguous theoretical argument in favor of either direct or indirect regulation of bankers' pay.

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The Role of Ownership Structure and Regulatory Environment in Bank Corporate Governance

Cited by 6 publications

References 48 publications

Ownership concentration of three large Belgian banks during the crisis

Ownership concentration of three large Belgian banks during the crisis

Financial Market Regulation

Regulation of Bank Management Compensation

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