The Effect of Multiple Large Shareholders on Banks’ Profitability and Risk

Maria Gaia Soana,Andrea Lippi,Simone Rossi,Laura Barbieri

doi:10.3390/su13041888

Abstract

The wide-ranging academic literature on corporate governance in the banking sector includes only a few studies on bank ownership and, specifically, on the comparative power of shareholders within the corporate structure. This paper reports an investigation into the presence of multiple large shareholders and their influence on profitability and risk in the long-term, considering a sample of 697 U.S. and European listed commercial banks from 2008 to 2018. It was found that the number of large and institutional shareholders has a positive impact on profitability, but no effect on risk. However, long-term ownership by multiple large shareholders contributes to decreasing risk in banks.

Highlights

Good corporate governance in banks is fundamental to the proper functioning of the financial sector and essential to achieving and maintaining public trust and confidence in the banking system
Relevant institutional investors have the potential to influence the corporate choices of the banks they invest in
Their stakes in these companies, and so their financial incentive, encourages them to play a monitoring function as regards management. Thanks to their specific knowledge of the industry, institutional investors can contribute to mitigating asymmetric information problems and reducing managerial myopia, influencing banks’ financial performance and risk

Summary

Introduction

Good corporate governance in banks is fundamental to the proper functioning of the financial sector and essential to achieving and maintaining public trust and confidence in the banking system. Because of the crucial financial intermediation role of banks, weaknesses in their corporate governance can determine problems for the sustainability of the financial companies themselves and for the economy as a whole. Academic literature reveals an intense focus on bank corporate governance in recent years. Most papers in this area have been concentrated on the composition and functioning of the board of directors, with scholars investigating its role in monitoring risk-taking behavior and improving performance. Most previous studies of bank ownership structure (e.g., References [1,2]) have focused mainly on dominant or major shareholders, while the joint presence of multiple large shareholders, and the role of long-term large shareholders, have so far been less investigated [3]

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Conclusion