Working Paper: NBER ID: w27442
Authors: Martin Goetz; Luc Laeven; Ross Levine
Abstract: We evaluate the role of insider ownership in shaping banks’ equity issuances in response to the global financial crisis. We construct a unique dataset on the ownership structure of U.S. banks and their equity issuances and discover that greater insider ownership leads to less equity issuances. Several tests are consistent with the view that bank insiders are reluctant to reduce their private benefits of control by diluting their ownership through equity issuances. Given the connection between bank equity and lending, the results stress that ownership structure can shape the resilience of banks—and hence the entire economy—to aggregate shocks.
Keywords: insider ownership; equity issuance; financial crisis; bank stability
JEL Codes: G21; G28; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| greater insider ownership (G34) | less likely to issue new equity (G32) |
| insider ownership structure (G34) | bank behavior during the crisis (F65) |
| greater insider ownership (G34) | reduced equity issuances (G32) |
| higher insider ownership (G34) | significant reduction in common stock sales (G32) |