A brief review of the role of shareholder wealth maximisation and other factors contributing to the global financial crisis

Yahanpath, Noel; Joseph, Tintu

doi:10.1108/17554171111124621

Cited by 14 publications

(8 citation statements)

References 17 publications

(11 reference statements)

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“…In contrast, countries with collectivist cultures give priority to societal and work group goals over individual gain and needs. Therefore, banks operating in individualistic societies should increase risk to cater to their customer and shareholder needs whose primary objective is wealth maximization (Yahanpath, 2011) and have little consideration about the impact of bank risk to the stability of the national financial system. Shareholders benefit from increased risk-taking through its positive effect on the expected return of their investments.…”

Section: Introductionmentioning

confidence: 99%

National culture and bank risk-taking

Mourouzidou-Damtsa

Milidonis

Stathopoulos

2019

Journal of Financial Stability

122

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We investigate the relation between national cultural values and bank risk. Despite the rigid transnational regulatory oversight of systemic European banks, we find evidence of an economically significant association between cultural values and domestic bank risk. Specifically, we report a positive (negative) association between the cultural values of individualism and hierarchy (trust) and domestic bank risk-taking. Consistent with our predictions, this relation weakened during the recent financial crisis and does not hold for global banks, regardless of the period under investigation. Our findings are robust to endogeneity tests that mitigate concerns regarding reverse causality and confounding effects affecting our conclusions.

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Section: Introductionmentioning

confidence: 99%

National culture and bank risk-taking

Mourouzidou-Damtsa

Milidonis

Stathopoulos

2019

Journal of Financial Stability

122

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“…This section has described Schumpeterian drivers of creativity and destruction at play prior to and in the aftermath of the credit crunch. Creativity is a characteristic of secular financial markets, producing complex assets which meet the needs of investors, and fees for arrangers of the process (Yahanpath and Joseph, 2011).…”

Section: Section 4 Drivers Of Creativity and Destruction In Financial Marketsmentioning

confidence: 99%

Schumpeter’s creative destruction and the credit crunch of 2007–2008: an Islamic banking perspective

Norton

Imeny

2021

QRFM

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Purpose This paper aims to compare products traded in secular and Islamic banking environments prior to the credit crunch of 2007–2008; to locate the comparison in a Schumpeterian model of creative destruction of dynamic innovation in the capital markets; and to evaluate the implications for diversity of investor product choice. Design/methodology/approach Financial products are critiqued using qualitative criteria, including underestimation of risk implicit in mortgage-backed securities and securitisation, excessive speculative activity in credit default swaps and the magnification of leverage and volatility. Comparable Islamic products are considered for the extent to which they facilitate the same precursors of market crises. Findings Innovation in secular financial markets has traditionally led to asset bubbles, underestimation of risks and market exuberance. Islamic banking constrains creativity by prohibiting risk transference and disconnection of financing activity from social context and economic purpose. As such, the latter reduces Schumpeterian creative destruction but at the cost of reduced investor choice and market liquidity. Restriction of the reallocation of risk between those who do not wish to hold it and those who do dampens innovation but would have prevented the trading of products which contributed to the credit crunch. Originality/value The constraining effect of Islamic banking upon creativity and innovation is considered alongside its capacity to reduce market volatility, speculation and systemic instability. Schumpeterian theory deepens the analysis in terms of the drivers of innovation and market collapse.

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“…Unethical behavior, agency problems, CEO compensation, and risk change, are some of the side effects of shareholder wealth maximization (SWM) (YAHANPATH and JOSEPH, 2011). Future studies will contribute to determining motivation, especially relating to agency problems.…”

Section: )mentioning

confidence: 99%

Behavioral agency research and theory: a review and research agenda

2020

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The behavioral agency theory verifies the relationship between company executives, CEOs, and managers, and their decision-making within the firm. The mechanisms of governance and the forms of remuneration are instruments that monitor internal members avoiding risks that potentially harm the organization’s valuation. This article highlights the importance of the behavioral agency theory both for firms that trust their decision-making process to an agent and for the behavior of this agent. Both aspects are subject to concerns that usually lead to recommendations to establish or improve the executives’ compensation plans. Through bibliometric research analyzing 107 articles, it was possible to verify that executives’ performance compensation, according to agency theory, is the most used mechanism to stimulate executives to make decisions toward the company’s growth and best performance. This study’s theoretical and empirical contribution point to the need for future research on this topic since understanding the agent’s behavior is strategic for companies to help the agent to act on its benefit while reducing the possibilities of inadequate and harmful behavior.

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A brief review of the role of shareholder wealth maximisation and other factors contributing to the global financial crisis

Cited by 14 publications

References 17 publications

National culture and bank risk-taking

National culture and bank risk-taking

Schumpeter’s creative destruction and the credit crunch of 2007–2008: an Islamic banking perspective

Behavioral agency research and theory: a review and research agenda

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