Governance and Bank Valuation

Which public policies and ownership structures enhance the governance of banks? The authors construct a new database on the ownership of banks internationally and then assess the ramifications of ownership, shareholder protection laws, and supervisory and 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. The authors 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.

Bibliographic Details

Main Authors:	Caprio, Gerard, Laeven, Luc, Levine, Ross
Language:	English en_US
Published:	World Bank, Washington, D.C. 2004-02
Subjects:	BANKING, CORPORATE GOVERNANCE, SECURITIES LAW, SUPERVISION, REGULATION, REGULATION OF FINANCIAL INSTITUTIONS, BANKING SUPERVISION, BANK HOLDING COMPANIES ADVERSE EFFECTS, AGENCY PROBLEMS, ASSET STRIPPING, ASSETS, AUDITORS, BANK CAPITAL, BANK HOLDING COMPANIES, BANK HOLDING COMPANY, BANK PERFORMANCE, BANK REGULATION, BANK RISK, BANK SUPERVISION, BANKING SECTOR, BANKING SYSTEM, BANKS, BOOK VALUE, CAPITAL ACCUMULATION, CAPITAL REQUIREMENTS, CAPITAL STANDARDS, CENTRAL BANKS, COMMERCIAL BANKS, COMPETITIVENESS, CORPORATE CONTROL, CORPORATE FINANCE, COST OF CAPITAL, DEPOSIT INSURANCE, DEPOSITORS, DISCLOSURE, DIVIDENDS, EXCESSIVE RISK, EXPROPRIATION, EXTERNAL FINANCING, FEDERAL RESERVE BANK OF NEW YORK, FINANCIAL INSTITUTIONS, FOREIGN SHAREHOLDERS, GOVERNMENT REGULATION, GROWTH RATE, INSTITUTIONAL DEVELOPMENT, INSURANCE POLICIES, INVESTOR PROTECTION, LARGE SHAREHOLDERS, LAWS, LEGAL PROTECTION, LEGAL SYSTEMS, LIQUIDITY, MARKET VALUATION, MARKET VALUE, MUTUAL FUND, ORGANIZATIONAL STRUCTURE, OWNERSHIP STRUCTURE, PORTFOLIO, PREDICTIONS, PRODUCTIVITY, PRODUCTIVITY GROWTH, PUBLIC POLICIES, REGULATORY REGIMES, SAVINGS, SECURITIES, SECURITIES MARKETS, SHAREHOLDERS, SHAREHOLDERS RIGHTS, STATE OWNERSHIP, STATEMENTS, STOCK EXCHANGES, SUPERVISORY AGENCIES, WEALTH,
Online Access:	http://documents.worldbank.org/curated/en/2004/02/4044470/governance-bank-valuation https://hdl.handle.net/10986/14726
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