Does bank stakeholder orientation enhance financial stability?
Does bank stakeholder orientation enhance financial stability?
Using the staggered enactment of constituency statutes across US states, we find that banks with directors whose legal duties are expanded to consider stakeholder and long-term interests significantly reduce risk-taking by increasing capital and shifting to safer borrowers. Additionally, we find that the effect of statute enactment on bank performance is insignificant on average but significantly positive for banks that take excessive risk. Furthermore, we find that banks that previously received a statute enactment fared significantly better during the crises. Our findings support the increasing calls for greater emphasis on stakeholder interests amidst the current bank regulatory and governance reforms.
bank risk-taking, stakeholder orientation, constituency statutes, fiduciary duties, financial stability
38-63
Leung, Woon Sau
73a8bf54-6035-4f11-a9ec-74272abbacb5
Song, Wei
0d91b8a3-694b-469e-a15e-bba82dc5d090
Chen, Jie
7181526d-ec25-480e-a35e-37bf4616e131
19 January 2019
Leung, Woon Sau
73a8bf54-6035-4f11-a9ec-74272abbacb5
Song, Wei
0d91b8a3-694b-469e-a15e-bba82dc5d090
Chen, Jie
7181526d-ec25-480e-a35e-37bf4616e131
Leung, Woon Sau, Song, Wei and Chen, Jie
(2019)
Does bank stakeholder orientation enhance financial stability?
Journal of Corporate Finance, 56, .
(doi:10.1016/j.jcorpfin.2019.01.003).
Abstract
Using the staggered enactment of constituency statutes across US states, we find that banks with directors whose legal duties are expanded to consider stakeholder and long-term interests significantly reduce risk-taking by increasing capital and shifting to safer borrowers. Additionally, we find that the effect of statute enactment on bank performance is insignificant on average but significantly positive for banks that take excessive risk. Furthermore, we find that banks that previously received a statute enactment fared significantly better during the crises. Our findings support the increasing calls for greater emphasis on stakeholder interests amidst the current bank regulatory and governance reforms.
Text
DoesBankStakeholderOrientationEnhanceFinancialStability
- Accepted Manuscript
More information
Accepted/In Press date: 9 January 2019
e-pub ahead of print date: 11 January 2019
Published date: 19 January 2019
Keywords:
bank risk-taking, stakeholder orientation, constituency statutes, fiduciary duties, financial stability
Identifiers
Local EPrints ID: 433991
URI: http://eprints.soton.ac.uk/id/eprint/433991
ISSN: 0929-1199
PURE UUID: 48662850-bb7a-49af-86e5-560acd675170
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Date deposited: 10 Sep 2019 16:30
Last modified: 16 Mar 2024 08:11
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Author:
Woon Sau Leung
Author:
Wei Song
Author:
Jie Chen
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