'The Paradox of Success': The Effect of Growth, Competition and Managerial Self-Interest on Building Society Risk-Taking and Market Structure, c.1880-1939
Some scholars have posited that mutual banks have fewer incentives to engage in excessive risk-taking than joint-stock banks because of the unique structure of property rights in the mutual firm.� This paper uses their theory as a framework to explain the divergent risk-taking behavior of building societies between the pre-war and the inter-war periods, and between large and small societies in the latter period.� It is argued in this paper that the low risk-taking behaviour predicted of mutual financial institutions like building societies can only be expected of small regional societies which were less exposed to competition than their larger, city-based counterparts which competed more aggressively for investor funds and mortgage business.� In the inter-war period, increased competition between societies led to levels of risk-taking hitherto unseen in the movement, leading to calls by the movement's leaders to consolidate the sector into the hands of a few large societies.� This process of consolidation promised to benefit members and to improve the overall efficiency of societies in the movement.� The actual experience however shows that these promises were largely unmet.� Rather, it is shown that the only beneficiaries of firm growth were building society managers, who were able to extract higher pay from empire building.
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