Does bank stakeholder orientation enhance financial stability?

Leung, Woon Sau ORCID: https://orcid.org/0000-0002-0389-2126, Song, Wei and Chen, Jie ORCID: https://orcid.org/0000-0002-4076-7121 2019. Does bank stakeholder orientation enhance financial stability? Journal of Corporate Finance 56 , pp. 38-63. 10.1016/j.jcorpfin.2019.01.003

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Abstract

Using the staggered enactment of constituency statutes across US states, we find that banks with directors whose legal duties are expanded to consider stakeholder and long-term interests significantly reduce risk-taking by increasing capital and shifting to safer borrowers. Additionally, we find that the effect of statute enactment on bank performance is insignificant on average but significantly positive for banks that take excessive risk. Furthermore, we find that banks that previously received a statute enactment fared significantly better during the crises. Our findings support the increasing calls for greater emphasis on stakeholder interests amidst the current bank regulatory and governance reforms.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HG Finance
Uncontrolled Keywords:	Bank risk-taking; Stakeholder orientation; Constituency statutes; Fiduciary duties; Financial stability.
Publisher:	Elsevier
ISSN:	0929-1199
Date of First Compliant Deposit:	14 January 2019
Date of Acceptance:	9 January 2019
Last Modified:	13 Nov 2023 11:51
URI:	https://orca.cardiff.ac.uk/id/eprint/118330

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