Abstract
We test for the existence of market discipline of banks by different types of shareholders. Shareholder discipline manifests itself in the form of monitoring the riskiness of banks as well as influencing the management actions of the banks to limit risk-taking. Shareholders utilize different types of risk measures to monitor bank risk taking. Shareholders influence bank management to improve capital adequacy and loan quality when they observe increasing riskiness. Owner-managers or large shareholders demonstrate significant influence on bank management. We also find that the influence on management in small banks by shareholders is more pronounced.
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