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Financial Innovation, Investment Opportunities, and Corporate Policy Choices for Large Bank Holding Companies

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  • Collins, M Cary
  • Blackwell, David W
  • Sinkey, Joseph F, Jr

Abstract

This study determines the effects of agency costs on bank management by investigating the relationship between investment opportunities and corporate policy choices for large bank holding companies from 1977 to 1985. The financial innovations in this period resulted in numerous investment opportunities for banks and their holding companies. The market-to-book ratio, a proxy for these opportunities or growth options, reveals significant differences in the opportunity sets of regional and money center banks. Since the growth options are negatively related to both debt financing and dividend payout, a policy prescription for reducing bank holding company (BHC) leverage is to allow bank/BHC investment opportunities to expand through product and geographic deregulation. Copyright 1994 by MIT Press.

Suggested Citation

  • Collins, M Cary & Blackwell, David W & Sinkey, Joseph F, Jr, 1994. "Financial Innovation, Investment Opportunities, and Corporate Policy Choices for Large Bank Holding Companies," The Financial Review, Eastern Finance Association, vol. 29(2), pages 223-247, May.
    • Handle: RePEc:bla:finrev:v:29:y:1994:i:2:p:223-47
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    Cited by:

    1. Saunders, Anthony & Wilson, Berry, 1999. "The impact of consolidation and safety-net support on Canadian, US and UK banks: 1893-1992," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 537-571, February.
    2. Carow, Kenneth A. & Cox, Steven R. & Roden, Dianne M., 2004. "Mutual holding companies: Evidence of conflicts of interest through disparate dividends," Journal of Banking & Finance, Elsevier, vol. 28(2), pages 277-298, February.
    3. Shaojie Lai & Qing Wang & Jiangze Du & Shuwen Pi, 2021. "Has the Propensity to Pay Dividends Declined? Evidence from the US Banking Sector," JRFM, MDPI, vol. 14(3), pages 1-14, March.
    4. Marco Belloni & Maciej Grodzicki & Mariusz Jarmuzek, 2022. "Why European Banks Adjust their Dividend Payouts?," IMF Working Papers 2022/194, International Monetary Fund.
    5. Galloway, Tina M. & Lee, Winson B. & Roden, Dianne M., 1997. "Banks' changing incentives and opportunities for risk taking," Journal of Banking & Finance, Elsevier, vol. 21(4), pages 509-527, April.
    6. Salvatore Cardillo & Jacopo Raponi, 2023. "EU banks' dividend policies: main determinants and the role of capital ratios," Temi di discussione (Economic working papers) 1403, Bank of Italy, Economic Research and International Relations Area.
    7. Vu Quang Trinh & Marwa Elnahass & Aly Salama, 2021. "Board busyness and new insights into alternative bank dividends models," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1289-1328, May.
    8. Cappa, Francesco & Oriani, Raffaele & Pinelli, Michele & De Massis, Alfredo, 2019. "When does crowdsourcing benefit firm stock market performance?," Research Policy, Elsevier, vol. 48(9), pages 1-1.

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