Shareholder empowerment and bank bailouts

Ferreira, Daniel ORCID: 0000-0003-4590-8429, Kershaw, David ORCID: 0000-0002-6691-4687, Kirchmaier, Tom and Schuster, Edmund-Philipp ORCID: 0000-0002-9355-535X (2012) Shareholder empowerment and bank bailouts. Financial Markets Group Discussion Papers (714). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

We investigate the hypothesis that shareholder empowerment may have led to more bank bailouts during the recent financial crisis. To test this hypothesis, we propose a management insulation index based on banks' charter and by-law provisions and on the provisions of the applicable state corporate law that make it difficult for shareholders to oust a firm's management. Our index is both conceptually and practically different from the existing alternatives. In a sample of US commercial banks, we show that management insulation is a good predictor of bank bailouts: banks in which managers are fully insulated from shareholders are roughly 19 to 26 percentage points less likely to be bailed out. We also find that banks in which the management insulation index was reduced between 2003 and 2006 are more likely to be bailed out. We discuss alternative interpretations of the evidence. The evidence is mostly consistent with the hypothesis that banks in which shareholders were more empowered performed poorly during the crisis.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2012 The Author(s)
Divisions:	Finance Law
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G2 - Financial Institutions and Services > G20 - General
Date Deposited:	16 May 2023 13:54
Last Modified:	11 Dec 2024 19:46
URI:	http://eprints.lse.ac.uk/id/eprint/119039

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