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The bright side of common ownership: Evidence from bank transparency

Lookup NU author(s): Dr Shams PathanORCiD

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This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).

Abstract

Over 74% of US banks share common ownership with other banks. Our analysis of a large sample of US banks reveals that those with greater common ownership demonstrate heightened transparency. This manifests as reduced discretion in loan loss provisions, improved financial statement readability, and enhanced comparability. We pinpoint three underlying mechanisms: decreased private information gathering, increased stock liquidity, and diminished managerial incentives for opacity. Furthermore, these commonly owned banks exhibit lower crash risk due to their improved transparency. Our findings hold after using various proxies and two endogeneity-reduction methods: a difference-in-differences analysis based on the 2009 Blackrock–Barclays Global Investors merger and an instrumental variable approach using Russell 2000 index inclusions. Overall, our study underscores the positive impact of common ownership in the banking sector.

Publication metadata

Author(s): Park H, Pathan S, Stathopoulos K, Marwick A

Publication type: Article

Publication status: Published

Journal: The British Accounting Review

Year: 2024

Volume: 56

Issue: 6

Print publication date: 01/11/2024

Online publication date: 30/07/2024

Acceptance date: 29/07/2024

Date deposited: 28/11/2024

ISSN (print): 0890-8389

ISSN (electronic): 1095-8347

Publisher: Academic Press

URL: https://doi.org/10.1016/j.bar.2024.101445

DOI: 10.1016/j.bar.2024.101445

Data Access Statement: Data will be made available on request.

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