Governance and Bank Valuation

Gerard Caprio, Luc Laeven and Ross Levine ()

No 10158, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Which public policies and ownership structures enhance the governance of banks? This paper constructs a new database on the ownership of banks internationally and then assesses the ramifications of ownership, shareholder protection laws, and supervisory/regulatory policies on bank valuations. Except in a few countries with very strong shareholder protection laws, banks are not widely held, but rather families or the State tend to control banks. We find that (i) larger cash flow rights by the controlling owner boosts valuations, (ii) stronger shareholder protection laws increase valuations, and (iii) greater cash flow rights mitigate the adverse effects of weak shareholder protection laws on bank valuations. These results are consistent with the views that expropriation of minority shareholders is important internationally, that laws can restrain this expropriation, and concentrated cash flow rights represent an important mechanism for governing banks. Finally, the evidence does not support the view that empowering official supervisory and regulatory agencies will increase the market valuation of banks.

JEL-codes: G21 G34 (search for similar items in EconPapers)
Date: 2003-12
New Economics Papers: this item is included in nep-cfn
Note: CF IFM
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Citations: View citations in EconPapers (34)

Published as Caprio, Gerard & Laeven, Luc & Levine, Ross, 2007. "Governance and bank valuation," Journal of Financial Intermediation, Elsevier, vol. 16(4), pages 584-617, October.

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Journal Article: Governance and bank valuation (2007)
Working Paper: Governance and bank valuation (2004)
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