Governance and Bank Valuation

By G. Caprio, Luc Laeven, Ross Levine. 2004

707 citations recorded by the source corpus.

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.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/5cb089bb7242712a9dd1cc6f91a9eb5b5760a2c1

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Citations in the corpus

Bank Capital Ratios Across Countries: Why Do They Vary? (2008, neutral): “ Caprio et al. (2007) argue that a large value of CONTROLCF “may reflect both an owner’s ability (large voting rights) and incentives (small cash-flow rights) to expropriate bank resources.” Higher values of CONTROLCF thus are likely to be associated with greater risk taking by banks and lower capi”
Corporate Governance and Regulation: Can There Be Too Much of a Good Thing? (2007, positive): “(2004); Caprio et al. (2006)), we use country random effects because the investor protection explanatory variables we use do not have within-country variation, thus precluding the use of country fixed effects. Also, our sample of companies is a subsample of the total population within each country a”
The impact of bank ownership concentration on impaired loans and capital adequacy (2010, methodology): “In contrast to Caprio et al. (2007), we focus on impaired loans and capital adequacy instead of the value of the bank.”
Law and Firms' Access to Finance (2004, background): “…with which financial systems allocate capital (Wurgler 2000; Beck and Levine 2002), the valuation of firms (Claessens et al. 2002; LLSV 2002; Caprio et al. 2003), the dividend payment policies of corporations (LLSV 2000), the efficiency of equity markets (Morck, Yeung, and Yu, 2000), and…”
Corporate Governance, Economic Entrenchment and Growth (2005, positive): “…documented by La Porta, Lopezde-Silanes, and Zamarripa (2003) in Mexico is commonplace elsewhere, the ubiquity of family controlled banks throughout the world, documented by Caprio, Laeven, and Levine (2003), pervasive capital misallocation by banks might be a major impediment to development.”
Efficiency in Banking: Theory, Practice, and Evidence (2008, background): “Caprio, Laeven, and Levine (2003) study the effect of ownership, shareholder protection”