Bank Management Between Shareholders and Regulators by Christian Harm

By Christian Harm

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These are to some extent evidence of contract incompleteness, which represents an undesirable friction in social life. In the purist corporate governance ideal, shareholders are the ones having discretionary control over the management process, since they stand the most 47 Banks may, for example, have a better lobby to effect regulatory forbearance. See Llewellyn and Holmes (1991) for this argument. 49 See Jensen’s (2001) concept of “enlightened value maximization”. 48 Theoretical Perspectives on Management, Governance, and Finance 39 to lose.

55 Coase (1937), Williamson (1985). 1 Stock market gains The early literature followed in the footsteps of Jensen and Ruback (1983), who examined the wealth effects of merger activity in general to conclude that mergers did generally create wealth, and that this wealth creation was to be seen as an increase in shareholder value due to a more active market for corporate control. Accordingly, it was examined, whether bank mergers increased shareholder value. Here, Desai and Stover (1985) found that bidder BHC’s experienced positive abnormal returns upon announcement as well as approval of a merger bid.

Nonetheless, DeYoung, Spong and Sullivan (2001) study only small commercial banks to conclude that – once the decision to hire an outside manager has been made – success depends vitally on the provision of incentives related to firm success, and that management ownership stakes are an important element of such success. In a nutshell, the articles examining ownership stakes of bank managers in a corporate governance setting mirror the insights gained in the wider debate over management ownership: Morck, Shleifer and Vishny (1988) found both incentive (at low levels of management ownership) as well as entrenchment effects (at higher levels of management ownership).

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