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Too dispersed to monitor? Ownership dispersion, monitoring and the prediction of bank distress

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  • Tristan Auvray

    () (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - Université Toulouse I Capitole - Institut d'Etudes Politiques de Toulouse - Ecole Nationale de Formation Agronomique - Université Toulouse le Mirail - Toulouse II)

  • Olivier Brossard

    () (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - Université Toulouse I Capitole - Institut d'Etudes Politiques de Toulouse - Ecole Nationale de Formation Agronomique - Université Toulouse le Mirail - Toulouse II)

Abstract

This paper conducts an empirical assessment of the theories stating that ownership concentration improves the quality of shareholders' monitoring. In contrast with other studies, we do not use regressions of risk/performance on ownership concentration. Instead, we build an early warning model of bank distress that includes a leading indicator derived from banks' share price, the Merton-KMV distance to default (DD). The significance of this indicator depends on the efficacy of shareholders' monitoring. On a sample of European banks, we show that the predictive power of the DD is satisfactory only when banks' shareholding is characterized by the presence of blockholders.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00638913.

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Date of creation: 13 Jan 2010
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Handle: RePEc:hal:wpaper:hal-00638913

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Related research

Keywords: Monitoring; Ownership concentration; Block ownership; Bank distress; Early warning models; Distance to default;

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  1. Andrea Sironi, 2001. "Testing for market discipline in the European banking industry: evidence from subordinated debt issues," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 366-384.
  2. Sangkyun Park & Stavros Peristiani, 2001. "Are bank shareholders enemies of regulators or a potential source of market discipline?," Staff Reports 138, Federal Reserve Bank of New York.
  3. Thierno Amadou Barry & Laetitia Lepetit & Amine Tarazi, 2011. "Ownership structure and risk in publicly held and privately owned Banks," Post-Print hal-00785225, HAL.
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  12. Iannotta, Giuliano & Nocera, Giacomo & Sironi, Andrea, 2007. "Ownership structure, risk and performance in the European banking industry," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 2127-2149, July.
  13. Isabelle Distinguin & Philippe Rous & Amine Tarazi, 2006. "Market Discipline and the Use of Stock Market Data to Predict Bank Financial Distress," Journal of Financial Services Research, Springer, vol. 30(2), pages 151-176, October.
  14. Männasoo, Kadri & Mayes, David G., 2009. "Explaining bank distress in Eastern European transition economies," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 244-253, February.
  15. Marco Becht & Fabrizio Barca, 2001. "The control of corporate Europe," ULB Institutional Repository 2013/13302, ULB -- Universite Libre de Bruxelles.
  16. Sullivan, Richard J. & Spong, Kenneth R., 2007. "Manager wealth concentration, ownership structure, and risk in commercial banks," Journal of Financial Intermediation, Elsevier, vol. 16(2), pages 229-248, April.
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