Does bank stakeholder orientation enhance financial stability?

Woon Sau Leung, Wei Song, Jie Chen

Research output: Contribution to journalArticlepeer-review

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.
Original languageEnglish
Pages (from-to)38-63
JournalJournal of Corporate Finance
Volume56
Early online date11 Jan 2019
DOIs
Publication statusPublished - Jun 2019

Keywords

  • bank risk-taking
  • stakeholder orientation
  • constituency statutes
  • fiduciary duties
  • financial stability

Fingerprint Dive into the research topics of 'Does bank stakeholder orientation enhance financial stability?'. Together they form a unique fingerprint.

Cite this