Institutional Shareholders and Bank Capital

Alexandre Garel, Arthur Petit-Romec and Rudi Vander Vennet

Journal of Financial Intermediation, 2022, vol. 50, issue C

Abstract: We examine the relationship between institutional ownership and bank capital. Using a large sample of U.S. banks, we show that banks with greater institutional ownership operate with substantially higher capital ratios. The results are robust to controlling for standard determinants of bank capital structure, including market- and accounting-based risk measures. The results hold both for indexers and non-indexers, indicating that the effect of institutional ownership on bank capital cannot be explained by self-selection. We further address endogeneity concerns using an instrumental variable strategy based on the inclusion of banks in the S&P index. We find supporting evidence that the superior monitoring abilities of institutional investors, which reduce the severity of agency costs, is the main explanation for our results.

Keywords: Bank capital; Institutional Investors; Capital Structure; Financial Stability; Monitoring (search for similar items in EconPapers)
JEL-codes: G21 G23 G28 G32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:50:y:2022:i:c:s1042957322000134

DOI: 10.1016/j.jfi.2022.100960

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