Competition and Agency Problems Within Banks: Evidence from Insider Lending

Mattia Girotti and Federica Salvadè
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Federica Salvadè: Paris School of Business, 75013 Paris, France

Management Science, 2022, vol. 68, issue 5, 3791-3812

Abstract: This paper studies whether greater competition can mitigate agency problems within banks. We measure the intensity of the agency conflict within a bank by the volume of loans that the bank lends to its insiders (e.g., executives). We first check that these loans are a form of private benefit. By exploiting interstate branching deregulation, we then show that banks react to greater competition by reducing insider lending, especially when the entry of new competitors may more strongly affect bank profitability. Results are robust to using various identification approaches and alternative indicators of agency conflict. We conclude that competitive pressure reduces managerial self-dealing.

Keywords: banks; agency problems; private benefits; competition; insider loans (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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http://dx.doi.org/10.1287/mnsc.2021.4043 (application/pdf)

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Working Paper: Competition and agency problems within banks: Evidence from insider lending (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:68:y:2022:i:5:p:3791-3812

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