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Franchise value, ownership structure, and risk at savings institutions
Abstract: This paper examines the relationship between asset risk and franchise values and between asset risk and ownership structure. Stock price data from publicly traded S&L is used to measure portfolio risk and franchise or charter values. The empirical results provide support for the moral hazard hypothesis. The standard deviation of equity returns is negatively related to S&L franchise values, as measured by the market-to-book asset ratio. This research also finds empirical support for models of managerial entrenchment in the thrift industry. We find evidence of a nonlinear relationship between risk and insider control. The standard deviation of equity returns initially falls then rises as ownership is concentrated in the hands of officers and directors.
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Bibliographic Information
Provider: Federal Reserve Bank of New York
Part of Series: Research Paper
Publication Date: 1996
Number: 9632