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

  • Tristan Auvray


    (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - UT1 - Université Toulouse 1 Capitole - UT2 - Université Toulouse 2 - Institut d'Études Politiques [IEP] - Toulouse - École Nationale de Formation Agronomique - ENFA)

  • Olivier Brossard


    (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - UT1 - Université Toulouse 1 Capitole - UT2 - Université Toulouse 2 - Institut d'Études Politiques [IEP] - Toulouse - École Nationale de Formation Agronomique - ENFA)

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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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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