Bank owners or bank managers: who is keen on risk? Evidence from the financial crisis

Reint Gropp and Matthias Köhler

No 10-013, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: In this paper, we analyse whether bank owners or bank managers were the driving force behind the risks incurred in the wake of the financial crisis of 2007/2008. We show that owner controlled banks had higher profits in the years before the crisis, and incurred larger losses and were more likely to require government assistance during the crisis compared to manager-controlled banks. The results are robust to controlling for a wide variety of bank specific, country specific, regulatory and legal variables. Regulation does not seem to mitigate risk taking by bank owners. We find no evidence that profit smoothing drives our findings. The results suggest that privately optimal contracts aligning the incentives of management and shareholders may not be socially optimal in banks.

Keywords: Banks; risk taking; corporate governance; ownership structure; financial crisis (search for similar items in EconPapers)
JEL-codes: G21 G30 G34 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ban, nep-bec and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:10013

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