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.
    Original languageEnglish
    JournalJournal of Management & Governance
    Volume18
    Issue number1
    Pages (from-to)159-183
    ISSN1385-3457
    DOIs
    Publication statusPublished - Feb 2014

    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.",
    keywords = "Corporate governance, Ownership structure, Legal families, Banks, Europe",
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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

    M3 - Journal article

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    EP - 183

    JO - Journal of Management & Governance

    JF - Journal of Management & Governance

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