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Bank equity Involvement in Industrial Firms and Bank Risk

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  • Laetitia Lepetit

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • Frank Strobel

    (University of Birmingham [Birmingham])

Abstract

The regulatory framework in Europe does not prevent banks from taking large or controlling equity stakes in non-financial firms, potentially contributing to higher levels of bank risk and financial instability. Using a panel of European commercial banks for the period 2004-2008, we find that higher levels of equity positions in industrial firms and higher proportions of industrial firms where the bank is the majority shareholder lead to higher bank activity and insolvency risk. At low levels of shareholder protection, these risk measures are reduced when equity investments are held for longer, an effect attenuated at higher levels of shareholder protection.

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  • Laetitia Lepetit & Frank Strobel, 2012. "Bank equity Involvement in Industrial Firms and Bank Risk," Working Papers hal-00916709, HAL.
    • Handle: RePEc:hal:wpaper:hal-00916709
    Note: View the original document on HAL open archive server: https://unilim.hal.science/hal-00916709
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    References listed on IDEAS

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