This paper investigates the relationship among the ownership structure, probability of failure, and risk taking of the banking industry. This paper finds statistically significant and consistent evidences that the greater risk taking incentives of sto...
This paper investigates the relationship among the ownership structure, probability of failure, and risk taking of the banking industry. This paper finds statistically significant and consistent evidences that the greater risk taking incentives of stockholder controlled banks(than managerially controlled banks) are more pronounced for the set of banks with relatively low probability of failure, where probability of failure is defined in terms of size (larger bank has lower probability of failure), and equity volatility (the bank with lower equity volatility has lower probability of failure). This suggest that the efficacy of insider ownership in reducing the owner/manager agency problems could be understood in terms of the risk status of the bank, and therefore, the costs imposed on the managers of aligning their interests with outside stockholders.