Does bank stakeholder orientation enhance financial stability?

Leung, Woon Sau; Song, Wei; Chen, Jie

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.

Citation

Leung, W. S., Song, W., & Chen, J. (2019). Does bank stakeholder orientation enhance financial stability?. Journal of Corporate Finance, 56, 38-63. https://doi.org/10.1016/j.jcorpfin.2019.01.003

• Journal Article Type: Article
• Acceptance Date: Jan 9, 2019
• Online Publication Date: Jan 11, 2019
• Publication Date: 2019-06
• Deposit Date: Jul 20, 2021
• Publicly Available Date: Jul 20, 2021
• Journal: Journal of Corporate Finance
• Print ISSN: 0929-1199
• Electronic ISSN: 0929-1199
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 56
• Pages: 38-63
• DOI: https://doi.org/10.1016/j.jcorpfin.2019.01.003
• Keywords: Strategy and Management; Economics and Econometrics; Finance; Business and International Management
• Public URL: https://nottingham-repository.worktribe.com/output/5809380
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0929119918303699?via%3Dihub
• Additional Information: This article is maintained by: Elsevier; Article Title: Does bank stakeholder orientation enhance financial stability?; Journal Title: Journal of Corporate Finance; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.jcorpfin.2019.01.003; Content Type: article; Copyright: © 2019 Elsevier B.V. All rights reserved.