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Does bank stakeholder orientation enhance financial stability?

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.
0929-1199
38-63
Leung, Woon Sau
1c82d98c-7cf5-4b3d-a617-b1b083020788
Song, Wei
0d91b8a3-694b-469e-a15e-bba82dc5d090
Chen, Jie
7181526d-ec25-480e-a35e-37bf4616e131
Leung, Woon Sau
1c82d98c-7cf5-4b3d-a617-b1b083020788
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, 38-63. (doi:10.1016/j.jcorpfin.2019.01.003).

Record type: Article

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.

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Accepted/In Press date: 4 January 2019
e-pub ahead of print date: 7 January 2019

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: 28 Apr 2022 06:27

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Contributors

Author: Woon Sau Leung
Author: Wei Song
Author: Jie Chen

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