Bank power, block ownership, boards and financial distress likelihood: An investigation of Spanish listed firms

Mangena, Musa; Priego, Alba Maria; Manzaneque, Montserrat

Abstract

We investigate the effects of bank power, block ownership and board independence on the likelihood of financial distress. Using a matched sample design, we find that firms in which banks have power are more likely than their counterparts to enter financial distress. However, the bank power effects are moderated by block ownership and board independence. Specifically, on the one hand, financial distress due to bank power is lower for firms with greater ownership by pressure resistant blockholders and such blockholders appear to be the largest blockholder in the firm. The bank power effects are also lower in firms with greater outside directors and this appears to be primarily driven by proprietary directors than independent directors. On the other, we document evidence suggesting that the bank power effects are magnified for firms in which the board chair is a proprietary director aligned to non-financial blockholders or CEO/Chair, suggesting that banks might partly influence decisions via board chairs. Overall, the findings are consistent with bank power actions being detrimental to the firm, but the extent to which such actions harm the firm depends on the monitoring intentions of blockholders and/or board of directors. These findings have important implications for policymakers.

Citation

Mangena, M., Priego, A. M., & Manzaneque, M. (2020). Bank power, block ownership, boards and financial distress likelihood: An investigation of Spanish listed firms. Journal of Corporate Finance, 64, Article 101636. https://doi.org/10.1016/j.jcorpfin.2020.101636

• Journal Article Type: Article
• Acceptance Date: Apr 30, 2020
• Online Publication Date: May 8, 2020
• Publication Date: Oct 1, 2020
• Deposit Date: May 7, 2020
• Publicly Available Date: Nov 9, 2021
• Journal: Journal of Corporate Finance
• Print ISSN: 0929-1199
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 64
• Article Number: 101636
• DOI: https://doi.org/10.1016/j.jcorpfin.2020.101636
• Keywords: Corporate governance; Bank power; board independence; block ownership; financial distress likelihood
• Public URL: https://nottingham-repository.worktribe.com/output/4387647
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0929119920300808
• Additional Information: This article is maintained by: Elsevier; Article Title: Bank power, block ownership, boards and financial distress likelihood: An investigation of Spanish listed firms; Journal Title: Journal of Corporate Finance; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.jcorpfin.2020.101636; Content Type: article; Copyright: © 2020 Elsevier B.V. All rights reserved.