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Institutional Shareholders and Bank Capital

Author

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  • Alexandre Garel

    (Audencia Business School)

  • Arthur Petit-Romec
  • Rudi Vander Vennet

Abstract

We examine the relationship between institutional ownership and bank capital. Using a large sample of U.S. banks, we show that banks with greater institutional ownership operate with substantially higher capital ratios. The results are robust to controlling for standard determinants of bank capital structure, including market- and accounting-based risk measures. The results hold both for indexers and non-indexers, indicating that the effect of institutional ownership on bank capital cannot be explained by self-selection. We further address endogeneity concerns using an instrumental variable strategy based on the inclusion of banks in the S&P index. We find supporting evidence that the superior monitoring abilities of institutional investors, which reduce the severity of agency costs, is the main explanation for our results.
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Suggested Citation

  • Alexandre Garel & Arthur Petit-Romec & Rudi Vander Vennet, 2022. "Institutional Shareholders and Bank Capital," Post-Print hal-03627750, HAL.
    • Handle: RePEc:hal:journl:hal-03627750
    DOI: 10.1016/j.jfi.2022.100960
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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