IDEAS home Printed from https://ideas.repec.org/p/trn/utwpeu/1576.html
   My bibliography  Save this paper

Was the Crisis Due to a Shift from Stakeholder to Shareholder Finance? Surveying the Debate

Author

Listed:
  • Giovanni Ferri
  • Angelo Leogrande

Abstract

We discuss the literature on the shift from stakeholder to shareholder finance behind the Great Financial Crisis (GFC). Traditional banks generally maximized stakeholder value (STV). But before the GFC also many of them started maximizing shareholder value (SHV). Moving from STV to SHV often meant shifting credit management from Originate-to-Hold (OTH) to Originate-toDistribute (OTD). Moving from STV-OTH to SHV-OTD increased systemic risk damaging the common good of financial stability. STV-oriented banks seemed to weather the GFC relatively better with more heterogeneous systems proving more resilient. Heterogeneity in banking governance-orientations/ownership-structures seems to add value reducing the probability of financial crises.

Suggested Citation

  • Giovanni Ferri & Angelo Leogrande, 2015. "Was the Crisis Due to a Shift from Stakeholder to Shareholder Finance? Surveying the Debate," Euricse Working Papers 1576, Euricse (European Research Institute on Cooperative and Social Enterprises).
  • Handle: RePEc:trn:utwpeu:1576
    as

    Download full text from publisher

    File URL: http://www.euricse.eu/wp-content/uploads/2015/04/WP-76_15_Ferri-Leogrande.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kwast, Myron L., 1989. "The impact of underwriting and dealing on bank returns and risks," Journal of Banking & Finance, Elsevier, vol. 13(1), pages 101-125, March.
    2. Lim, Sonya Seongyeon & Wang, Heli, 2007. "The effect of financial hedging on the incentives for corporate diversification: The role of stakeholder firm-specific investments," Journal of Economic Behavior & Organization, Elsevier, vol. 62(4), pages 640-656, April.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 1065-1188, November.
    5. Alesina, Alberto & Devleeschauwer, Arnaud & Easterly, William & Kurlat, Sergio & Wacziarg, Romain, 2003. "Fractionalization," Journal of Economic Growth, Springer, vol. 8(2), pages 155-194, June.
    6. Screpanti, Ernesto & Zamagni, Stefano, 2005. "An Outline of the History of Economic Thought," OUP Catalogue, Oxford University Press, edition 2, number 9780199279142.
    7. Heider, F. & Hoerova, M. & Holthausen, C., 2009. "Liquidity Hoarding and Interbank Market Spreads : The Role of Counterparty Risk," Discussion Paper 2009-40 S, Tilburg University, Center for Economic Research.
    8. Dorothy Wood & Donald G. Ross, 2006. "Environmental social controls and capital investments: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(4), pages 677-695.
    9. Xavier Freixas & Antoine Martin & David Skeie, 2011. "Bank Liquidity, Interbank Markets, and Monetary Policy," Review of Financial Studies, Society for Financial Studies, vol. 24(8), pages 2656-2692.
    10. Michael C. Jensen, 2010. "Value Maximization, Stakeholder Theory, and the Corporate Objective Function," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 32-42.
    11. Giovanni Ferri & Doris Neuberger, 2014. "The Banking Regulatory Bubble and How to Get out of It," Rivista di Politica Economica, SIPI Spa, issue 2, pages 39-69, April-Jun.
    12. Carson, Thomas L., 1993. "Does the Stakeholder Theory Constitute a New Kind of Theory of Social Responsibility?," Business Ethics Quarterly, Cambridge University Press, vol. 3(02), pages 171-176, April.
    13. Allen, Franklin & Carletti, Elena & Gale, Douglas, 2009. "Interbank market liquidity and central bank intervention," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 639-652, July.
    14. Van Buren, Harry J., 2001. "If Fairness is the Problem, Is Consent the Solution? Integrating ISCT and Stakeholder Theory," Business Ethics Quarterly, Cambridge University Press, vol. 11(03), pages 481-499, July.
    15. Allen, Franklin & Carletti, Elena & Marquez, Robert, 2007. "Stakeholder capitalism, corporate governance and firm value," CFS Working Paper Series 2007/26, Center for Financial Studies (CFS).
    16. repec:hrv:faseco:30747191 is not listed on IDEAS
    17. Caprio, Gerard & D’Apice, Vincenzo & Ferri, Giovanni & Puopolo, Giovanni Walter, 2014. "Macro-financial determinants of the great financial crisis: Implications for financial regulation," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 114-129.
    18. Saskia E. van Ewijk & Ivo J.M. Arnold, 2014. "How bank business models drive interest margins: evidence from US bank-level data," The European Journal of Finance, Taylor & Francis Journals, vol. 20(10), pages 850-873, October.
    19. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004. "Bank regulation and supervision: what works best?," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 205-248, April.
    20. Schreuder, Hein & Ramanathan, Kavasseri V., 1984. "Accounting and corporate accountability: a postscript," Accounting, Organizations and Society, Elsevier, vol. 9(3-4), pages 421-423, October.
    21. Allen, Franklin & Carletti, Elena, 2006. "Credit risk transfer and contagion," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 89-111, January.
    22. Giovanni Ferri & Panu Kalmi & Eeva Kerola, 2014. "Organizational Structure and Exposure to Crisis among European Banks: Evidence from Rating Changes," Journal of Entrepreneurial and Organizational Diversity, European Research Institute on Cooperative and Social Enterprises, vol. 3(1), pages 35-55, June.
    23. Clement, Ronald W., 2005. "The lessons from stakeholder theory for U.S. business leaders," Business Horizons, Elsevier, vol. 48(3), pages 255-264.
    24. Allen, Franklin & Carletti, Elena, 2008. "Mark-to-market accounting and liquidity pricing," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 358-378, August.
    25. Andrea L. Eisfeldt, 2004. "Endogenous Liquidity in Asset Markets," Journal of Finance, American Finance Association, vol. 59(1), pages 1-30, February.
    26. J. Kaler, 2006. "Evaluating Stakeholder Theory," Journal of Business Ethics, Springer, vol. 69(3), pages 249-268, December.
    27. Beltratti, Andrea & Stulz, René M., 2012. "The credit crisis around the globe: Why did some banks perform better?," Journal of Financial Economics, Elsevier, vol. 105(1), pages 1-17.
    28. Alvarez-Gil, M Jose & Berrone, Pascual & Husillos, F. Javier & Lado, Nora, 2007. "Reverse logistics, stakeholders' influence, organizational slack, and managers' posture," Journal of Business Research, Elsevier, vol. 60(5), pages 463-473, May.
    29. Doidge, Craig & Andrew Karolyi, G. & Stulz, Rene M., 2007. "Why do countries matter so much for corporate governance?," Journal of Financial Economics, Elsevier, vol. 86(1), pages 1-39, October.
    30. Hamid Mehran & Alan Morrison & Joel Shapiro, 2011. "Corporate governance and banks: what have we learned from the financial crisis?," Staff Reports 502, Federal Reserve Bank of New York.
    31. Lorenzo Sacconi, 2006. "A Social Contract Account for CSR as an Extended Model of Corporate Governance (I): Rational Bargaining and Justification," Journal of Business Ethics, Springer, vol. 68(3), pages 259-281, October.
    32. Cardinal, Gilles Le & Guyonnet, Jean-Francois & Pouzoullic, Bruno & Rigby, Julie, 2001. "Intervention methodology for complex problems: The FAcT-Mirror method," European Journal of Operational Research, Elsevier, vol. 132(3), pages 694-702, August.
    33. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    34. Xavier Freixas & José Jorge, 2008. "The Role of Interbank Markets in Monetary Policy: A Model with Rationing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(6), pages 1151-1176, September.
    35. Marens, Richard & Wicks, Andrew, 1999. "Getting Real: Stakeholder Theory, Managerial Practice, and the General Irrelevance of Fiduciary Duties Owed to Shareholders," Business Ethics Quarterly, Cambridge University Press, vol. 9(02), pages 273-293, April.
    36. Guido Lorenzoni, 2008. "Inefficient Credit Booms," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 809-833.
    37. De Jonghe, Olivier, 2010. "Back to the basics in banking? A micro-analysis of banking system stability," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 387-417, July.
    38. Berger, Allen N. & Udell, Gregory F., 2006. "A more complete conceptual framework for SME finance," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2945-2966, November.
    39. Yaron Leitner, 2005. "Financial Networks: Contagion, Commitment, and Private Sector Bailouts," Journal of Finance, American Finance Association, vol. 60(6), pages 2925-2953, December.
    40. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    41. Xavier Freixas, 2005. "Interbank Market Integration under Asymmetric Information," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 459-490.
    42. DeYoung, Robert & Torna, Gökhan, 2013. "Nontraditional banking activities and bank failures during the financial crisis," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 397-421.
    43. Vincenzo D’Apice & Giovanni Ferri & Punziana Lacitignola, 2016. "Rating Performance and Bank Business Models: Is There a Change with the 2007–2009 Crisis?," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 2(3), pages 385-420, November.
    44. Viral V. Acharya & Douglas Gale & Tanju Yorulmazer, 2011. "Rollover Risk and Market Freezes," Journal of Finance, American Finance Association, vol. 66(4), pages 1177-1209, August.
    45. Orts, Eric W. & Strudler, Alan, 2002. "The Ethical and Environmental Limits of Stakeholder Theory," Business Ethics Quarterly, Cambridge University Press, vol. 12(02), pages 215-233, April.
    46. Douglas W. Diamond & Raghuram G. Rajan, 2009. "Fear of Fire Sales and the Credit Freeze," NBER Working Papers 14925, National Bureau of Economic Research, Inc.
    47. Bryant, John, 1980. "A model of reserves, bank runs, and deposit insurance," Journal of Banking & Finance, Elsevier, vol. 4(4), pages 335-344, December.
    48. Schlossberger, Eugene, 1994. "A New Model of Business: Dual-Investor Theory," Business Ethics Quarterly, Cambridge University Press, vol. 4(04), pages 459-474, October.
    49. Hoff, Karla & Stiglitz, Joseph E., 2005. "The creation of the rule of law and the legitimacy of property rights : the political and economic consequences of a corrupt privatization," Policy Research Working Paper Series 3779, The World Bank.
    50. Giuseppe Coco & Giovanni Ferri, 2010. "From shareholders to stakeholders finance: a more sustainable lending model," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 2(3), pages 352-364.
    51. Barth, James R.*Caprio,Gerard*Levine, Ross, 2001. "The regulation and supervision of banks around the world - a new database," Policy Research Working Paper Series 2588, The World Bank.
    52. Freeman, R. Edward, 1994. "The Politics of Stakeholder Theory: Some Future Directions," Business Ethics Quarterly, Cambridge University Press, vol. 4(04), pages 409-421, October.
    53. Chou, Tzy-Yuan & Chou, Seng-cho T. & Tzeng, Gwo-Hshiung, 2006. "Evaluating IT/IS investments: A fuzzy multi-criteria decision model approach," European Journal of Operational Research, Elsevier, vol. 173(3), pages 1026-1046, September.
    54. Rafael La porta & Florencio Lopez-De-Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, June.
    55. Kirsten Martin & R. Freeman, 2004. "The Separation of Technology and Ethics in Business Ethics," Journal of Business Ethics, Springer, vol. 53(4), pages 353-364, September.
    56. Hatice Uzun & Elizabeth Webb, 2007. "Securitization and risk: empirical evidence on US banks," Journal of Risk Finance, Emerald Group Publishing, vol. 8(1), pages 11-23, January.
    57. Goodpaster, Kenneth E., 1991. "Business Ethics and Stakeholder Analysis," Business Ethics Quarterly, Cambridge University Press, vol. 1(01), pages 53-73, January.
    58. Grimble, Robin & Wellard, Kate, 1997. "Stakeholder methodologies in natural resource management: a review of principles, contexts, experiences and opportunities," Agricultural Systems, Elsevier, vol. 55(2), pages 173-193, October.
    59. Duane Windsor, 2006. "Corporate Social Responsibility: Three Key Approaches," Journal of Management Studies, Wiley Blackwell, vol. 43(1), pages 93-114, January.
    60. Williamson, Oliver E., 1980. "The organization of work a comparative institutional assessment," Journal of Economic Behavior & Organization, Elsevier, vol. 1(1), pages 5-38, March.
    61. Gallo, John G. & Apilado, Vincent P. & Kolari, James W., 1996. "Commercial bank mutual fund activities: Implications for bank risk and profitability," Journal of Banking & Finance, Elsevier, vol. 20(10), pages 1775-1791, December.
    62. Edward Freeman, R. & Evan, William M., 1990. "Corporate governance: A stakeholder interpretation," Journal of Behavioral Economics, Elsevier, vol. 19(4), pages 337-359.
    63. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
    64. Hendry, John, 2001. "Missing the Target: Normative Stakeholder Theory and the Corporate Governance Debate," Business Ethics Quarterly, Cambridge University Press, vol. 11(01), pages 159-176, January.
    65. Ferri, Giovanni & Kalmi, Panu & Kerola, Eeva, 2014. "Does bank ownership affect lending behavior? Evidence from the Euro area," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 194-209.
    66. Wall, Larry D., 1987. "Has bank holding companies' diversification affected their risk of failure?," Journal of Economics and Business, Elsevier, vol. 39(4), pages 313-326, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Giovanni Ferri, 2016. "Regolamentazione bancaria: serve un cambio di approccio," ECONOMIA E DIRITTO DEL TERZIARIO, FrancoAngeli Editore, vol. 2016(3), pages 383-408.

    More about this item

    Keywords

    Financial and Banking Crises; Bank Governance; Financial Regulation; Financial Institutions and Organizations;

    JEL classification:

    • G0 - Financial Economics - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:trn:utwpeu:1576. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Barbara Franchini). General contact details of provider: http://edirc.repec.org/data/euricit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.