'The Paradox of Success': The Effect of Growth, Competition and Managerial Self-Interest on Building Society Risk-Taking and Market Structure, c.1880-1939

Luke Samy

No _086, Oxford Economic and Social History Working Papers from University of Oxford, Department of Economics

Abstract: Some scholars have posited that mutual banks have fewer incentives to engage in excessive risk-taking than joint-stock banks because of the unique structure of property rights in the mutual firm. This paper uses their theory as a framework to explain the divergent risk-taking behavior of building societies between the pre-war and the inter-war periods, and between large and small societies in the latter period. It is argued in this paper that the low risk-taking behaviour predicted of mutual financial institutions like building societies can only be expected of small regional societies which were less exposed to competition than their larger, city-based counterparts which competed more aggressively for investor funds and mortgage business. In the inter-war period, increased competition between societies led to levels of risk-taking hitherto unseen in the movement, leading to calls by the movement's leaders to consolidate the sector into the hands of a few large societies. This process of consolidation promised to benefit members and to improve the overall efficiency of societies in the movement. The actual experience however shows that these promises were largely unmet. Rather, it is shown that the only beneficiaries of firm growth were building society managers, who were able to extract higher pay from empire building.

Date: 2011-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.nuff.ox.ac.uk/economics/history/

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oxf:esohwp:_086

Access Statistics for this paper

More papers in Oxford Economic and Social History Working Papers from University of Oxford, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Anne Pouliquen ( this e-mail address is bad, please contact ).