Subsidiary ownership decisions by bank holding companies

Wenling Lu and Wan-Jiun Paul Chiou

Journal of Financial Economic Policy, 2019, vol. 12, issue 3, 425-444

Abstract: Purpose - This study aims to examine the intertemporal changes in the institutional ownership of publicly traded bank holding companies (BHCs) in the USA. The role of owned-subsidiary investing in the portfolio decisions is investigated as compared to unaffiliated banks and non-bank institutional investors. Design/methodology/approach - The authors apply panel regressions that control bank-fixed and time-fixed effects to study the impact of prudence, liquidity, information advantages and historical returns on each type of the institutional ownership from 1986 to 2014. Findings - The subsidiary banks tend to invest in more shares of their parent BHCs when they are traded for a short period of time and when they have low-market risk, low turnover, a low capital equity ratio and great reliance on off-balance activities. However, the impact of these determinants of institutional ownership is opposite for unaffiliated banks and non-bank institutions. Research limitations/implications - This study provides evidence that the criteria used by subsidiary banks to invest in their parent company stock are different than the unaffiliated banks and non-bank institutions, raising concerns about the owned-subsidiary investing activities and banks’ trustees’ duty to work in the best interest of their trust clients. Originality/value - This paper provides a comprehensive analysis of the level and market value of BHC institutional ownership over the past three decades and the impact of different determinants on the ownership of BHCs by subsidiary banks, unaffiliated banks and non-bank institutional investors.

Keywords: Banks; Corporation and securities law; Institutional investors; Ownership structure; Banking; G21; G28; K22 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-05-2019-0088

DOI: 10.1108/JFEP-05-2019-0088

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