Working Paper

Shareholder activism in banking

Abstract: This paper conducts the first assessment of shareholder activism in banking and its effects on risk and performance. The focus is on the conflicts among bank shareholders, managers, and creditors (e.g., regulators, deposit insurer, taxpayers, depositors). This paper finds activism may generally be a destabilizing force, increasing bank risk-taking, but creating market value for shareholders, and leaving operating returns unchanged, consistent with the empirical dominance of the Shareholder-Creditor Conflict. However, during financial crises, the increase in risk disappears, suggesting activism risk incentives may be muted. From a public perspective, creditors (including the government) may lose during normal times, but not during financial crises.

Keywords: Banking; Financial crises; Financial stability; Shareholder activism;

JEL Classification: G01; G21; G28; G38;

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 2015-08-01

Number: RWP 15-9

Pages: 77 pages