Agency Theory and Entry Barriers in Banking

Peter S Rose

The Financial Review, 1992, vol. 27, issue 3, 323-53

Abstract: Agency theory suggests that, in imperfect labor and capital markets, managers will seek to maximize their own utility at the expense of corporate shareholders. Indicators of such managerial behavior may include expense preferencing in which some factor costs are elevated above optimal levels needed for efficient production or avoidance of optimal risk positions that maximize wealth opportunities for stockholders. This study of more than 6400 banks finds that recent reductions in legal entry barriers have generated results generally consistent with agency theory with a lowering of noninterest operating expenses, increased employee productivity, increased acceptance of portfolio risk, and greater dividend rates to shareholders. Copyright 1992 by MIT Press.

Date: 1992
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