John L. Teall

Risk-Taking Behavior in the U.S. Thrift Industry: Ownership Structure and Regulatory Changes

This paper is concerned with the relationship between ownership structure and risk taking in the U.S. thrift industry along with the impact of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) on this relationship. Our results, based on balance sheet and market measures of risk, suggest that insider controlled thrifts were more likely to engage in risk taking behavior prior to 1989 than were diversely held institutions. FIRREA seems to have curtailed much of the risk taking behavior of these institutions; in fact, some evidence suggests that insider controlled thrifts may have actually engaged in less risk taking behavior than their diversely held counterparts after 1989. We find inverse relationships between risk-taking behavior and levels of institutional shareholdings during all periods. This finding, along with the finding that increased risk-taking does not increase returns to thrift shareholders, suggests that the motive for risk-taking behavior on the part of insider held thrifts may not have been the maximization of the â¬Soptionâ¬? value associated with shares as reported elsewhere. We do find evidence that entrenched managers may have generated significant private benefits for themselves.

Shareholder control and financial distress in the thrift industry

Abstract The shareholder-manager of a corporation maintains dual roles. As a manager, he strives to maximize the value of his salary of firm-specific human capital; as a shareholder, he strives to maximize equity value. These objectives often conflict. The SL however, this behavior will decrease his job security. Thus, one might expect the managerial team with higher shareholdings to act more on behalf of shareholders and assume higher levels of risk. This article is concerned with wether managerial risk-taking behavior and financial distress in the thrift industry in the period June 1987 to March 1991 may be linked to levels of managerial shareholdings.

The one-share-one-vote-rule and managerial compensation

Abstract Firms listed in the United Kingdom, Sweden, Canada, Israel, and elsewhere frequently issue multiple classes of shares, while countries such as France and Italy have traditionally prohibited dual-class capitalizations. Finland, Sweden and Denmark place restrictions on vote ratios between share classes. Several theoretical papers, notably Grossman and Hart (1988) and Harris and Raviv (1988) offer theoretical evidence for the optimality of the One-Share-One-Vote rule, though the empirical evidence is mixed. The purpose of this paper is to integrate the important impact of managerial compensation into the capitalization decision. Theoretical evidence offered in this paper suggests that the opportunity to vary managerial compensation can lead to the optimality of dual-class capitalization. Hence, there may be little merit to the regulation of multiple class capitalizations.