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Deregulation, Reregulation, Equity Ownership, and S&L Risk-Taking

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  • A. Sinan Cebenoyan
  • Elizabeth S. Cooperman
  • Charles A. Register

Abstract

This study examines the relation between equity ownership composition and insolvency risk for savings and loans (S&Ls). We hypothesize that the effect of manager/stockholder alignments on bank risk-taking is contingent on the trade-off between stockholders' incentives for risk provided by deposit insurance subsidies and their disincentives based on the regulatory price for risk imposed under alternative regulatory regimes. In support of this hypothesis, we find that S&Ls with a high concentration of managerial stock ownership exhibit greater risk-taking behavior than other S&Ls in 1988, a period of regulatory leniency and forbearance on S&L closures, but lower risk-taking behavior in 1991, a period of regulatory stringency and nonforbearance. We also find S&Ls with a greater institutional investor ownership to have lower insolvency risk than other S&Ls in 1991.

Suggested Citation

  • A. Sinan Cebenoyan & Elizabeth S. Cooperman & Charles A. Register, 1995. "Deregulation, Reregulation, Equity Ownership, and S&L Risk-Taking," Financial Management, Financial Management Association, vol. 24(3), Fall.
  • Handle: RePEc:fma:fmanag:cebenoyan95
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    Cited by:

    1. Marshall, David A. & Prescott, Edward Simpson, 2001. "Bank capital regulation with and without state-contingent penalties," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 54(1), pages 139-184, June.
    2. Walter Dolde & John Knopf, 2010. "Insider Ownership, Risk, and Leverage in REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 41(4), pages 412-432, November.

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