Executive and non-executive employee ownership and bank risk: Evidence from European banks

Laetitia Lepetit (), Phan Huy Hieu Tran and Thu Ha Tran
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Laetitia Lepetit: UNILIM - Université de Limoges, LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges

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Abstract: Our study investigates how executive and non-executive employee ownership affects the risk-taking behavior of European banks, which has become an important issue for regulators as supportive policies promoting employee ownership are implemented. The extant literature on banking firms provides mixed results, focusing exclusively on executive ownership. We investigate channels that could shed light on the inconsistent of these findings. Using data from 2005 to 2019, we find that both executive and non-executive ownership are associated with lower bank risk, depending on employee ability and incentives to take risks. We address endogeneity issues related to banking risk and employee ownership by considering employees' long-term orientation. Our results indicate that policymakers should encourage broad-based employee ownership plans in the banking industry.

Date: 2023-12
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Published in Quarterly Review of Economics and Finance, 2023, 92, pp.291-319. ⟨10.1016/j.qref.2023.10.009⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04678218

DOI: 10.1016/j.qref.2023.10.009

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