Ownership Concentration and Market Value of European Banks

Ildura Busta, Evis Sinani, Steen Thomsen

    Research output: Contribution to journalJournal articleResearchpeer-review

    Abstract

    This paper investigates the relationship between ownership concentration and market value of European banks, and the role of the institutional environment in shaping this relationship. Using GMM dynamic estimator on a sample of European banks over a 13-year period (1993–2005) we find on average a negative effect of ownership concentration on bank value, measured by Tobin's Q. However, this effect varies across different institutional settings; while higher ownership concentration results in a lower bank value particularly in the countries belonging to German legal family, the impact of ownership concentration is positive in Scandinavia. We propose that, besides the legal protection of small investors, the differences in the impact of ownership concentration across the countries could be due to the identity of the predominant owners, i.e. financial institutions in Germany and trusts and foundations in Scandinavia. This in turn implies that restrictions of shareholdings in banks could alleviate governance problems in some countries, but lower bank valuation in others.
    This paper investigates the relationship between ownership concentration and market value of European banks, and the role of the institutional environment in shaping this relationship. Using GMM dynamic estimator on a sample of European banks over a 13-year period (1993–2005) we find on average a negative effect of ownership concentration on bank value, measured by Tobin's Q. However, this effect varies across different institutional settings; while higher ownership concentration results in a lower bank value particularly in the countries belonging to German legal family, the impact of ownership concentration is positive in Scandinavia. We propose that, besides the legal protection of small investors, the differences in the impact of ownership concentration across the countries could be due to the identity of the predominant owners, i.e. financial institutions in Germany and trusts and foundations in Scandinavia. This in turn implies that restrictions of shareholdings in banks could alleviate governance problems in some countries, but lower bank valuation in others.
    LanguageEnglish
    JournalJournal of Management & Governance
    Volume18
    Issue number1
    Pages159-183
    ISSN1385-3457
    DOIs
    StatePublished - Feb 2014

    Keywords

      Cite this

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      title = "Ownership Concentration and Market Value of European Banks",
      abstract = "This paper investigates the relationship between ownership concentration and market value of European banks, and the role of the institutional environment in shaping this relationship. Using GMM dynamic estimator on a sample of European banks over a 13-year period (1993–2005) we find on average a negative effect of ownership concentration on bank value, measured by Tobin's Q. However, this effect varies across different institutional settings; while higher ownership concentration results in a lower bank value particularly in the countries belonging to German legal family, the impact of ownership concentration is positive in Scandinavia. We propose that, besides the legal protection of small investors, the differences in the impact of ownership concentration across the countries could be due to the identity of the predominant owners, i.e. financial institutions in Germany and trusts and foundations in Scandinavia. This in turn implies that restrictions of shareholdings in banks could alleviate governance problems in some countries, but lower bank valuation in others.",
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      Ownership Concentration and Market Value of European Banks. / Busta, Ildura; Sinani, Evis; Thomsen, Steen.

      In: Journal of Management & Governance, Vol. 18, No. 1, 02.2014, p. 159-183.

      Research output: Contribution to journalJournal articleResearchpeer-review

      TY - JOUR

      T1 - Ownership Concentration and Market Value of European Banks

      AU - Busta,Ildura

      AU - Sinani,Evis

      AU - Thomsen,Steen

      PY - 2014/2

      Y1 - 2014/2

      N2 - This paper investigates the relationship between ownership concentration and market value of European banks, and the role of the institutional environment in shaping this relationship. Using GMM dynamic estimator on a sample of European banks over a 13-year period (1993–2005) we find on average a negative effect of ownership concentration on bank value, measured by Tobin's Q. However, this effect varies across different institutional settings; while higher ownership concentration results in a lower bank value particularly in the countries belonging to German legal family, the impact of ownership concentration is positive in Scandinavia. We propose that, besides the legal protection of small investors, the differences in the impact of ownership concentration across the countries could be due to the identity of the predominant owners, i.e. financial institutions in Germany and trusts and foundations in Scandinavia. This in turn implies that restrictions of shareholdings in banks could alleviate governance problems in some countries, but lower bank valuation in others.

      AB - This paper investigates the relationship between ownership concentration and market value of European banks, and the role of the institutional environment in shaping this relationship. Using GMM dynamic estimator on a sample of European banks over a 13-year period (1993–2005) we find on average a negative effect of ownership concentration on bank value, measured by Tobin's Q. However, this effect varies across different institutional settings; while higher ownership concentration results in a lower bank value particularly in the countries belonging to German legal family, the impact of ownership concentration is positive in Scandinavia. We propose that, besides the legal protection of small investors, the differences in the impact of ownership concentration across the countries could be due to the identity of the predominant owners, i.e. financial institutions in Germany and trusts and foundations in Scandinavia. This in turn implies that restrictions of shareholdings in banks could alleviate governance problems in some countries, but lower bank valuation in others.

      KW - Corporate governance

      KW - Ownership structure

      KW - Legal families

      KW - Banks

      KW - Europe

      U2 - 10.1007/s10997-012-9223-8

      DO - 10.1007/s10997-012-9223-8

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      T2 - Journal of Management & Governance

      JF - Journal of Management & Governance

      SN - 1385-3457

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