Insolvency, moral hazard and expense preference behavior: Evidence from US savings and loan associations

Gropper, Daniel M.; Beard, T. Randolph

doi:10.1002/mde.4090160604

Cited by 18 publications

(6 citation statements)

References 20 publications

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“…The role of EP in the context of mutual financial intermediaries has found unambiguous support in empirical studies across very different economic contexts (e.g. Benin: Gueyie, Sinzogan Gropper and Hudson 2003, Gropper and Beard 1995, Akella and Greenbaum 1988. Leggett and Strand (2002) found that the wave of mergers and rapid growth in size of United States credit unions that followed the 1982 elimination of multiple bond restriction, is resulting in measurable increase in 'agency costs' -a parallel concept proposed by Jensen and Meckling (1976).…”

Section: A Review Of the Tce Based Theory Of Cooperative Networkmentioning

confidence: 99%

The Power of Networks: Integration and Financial Cooperative Performance

Desrochers

Fischer

2005

Ann Public Coop Econ

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Abstract**: The purpose of this paper is to perform a cross‐country survey of the level of integration of systems of financial cooperatives (FC) and its effect on measures of performance. We develop a classification scheme based on a theoretical framework that builds on published work using transaction cost economics (TCE) to explain integration of large numbers of financial cooperatives into networks. We identify three critical levels of increasing integration we call respectively atomized systems, consensual networks and strategic networks. Further, we test some of the propositions that result from the theoretical framework on an international sample of financial cooperative systems. Based on this analysis we can conclude that: (i) Integration is less (more) important in developing (more developed) countries and for very small (large) financial cooperatives as a determinant of efficiency. However, integration tends to reduce volatility of efficiency and performance regardless of development. (ii) Integration appears to help control measure of managers’ expense preferences that tend to affect performance of FC. (iii) Despite high costs of running hub‐like organizations in highly integrated system, these systems economize in bounded rationality and operate at lower costs than less integrated systems.

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Section: A Review Of the Tce Based Theory Of Cooperative Networkmentioning

confidence: 99%

The Power of Networks: Integration and Financial Cooperative Performance

Desrochers

Fischer

2005

Ann Public Coop Econ

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“…MBs have higher expenses (O'Hara, 1981;Mester, 1989;Gropper and Beard, 1995;Esty, 1997), lower asset risk (O'Hara, 1981;Fraser and Zardkoohi, 1996;Esty, 1997) and lower default risk (Rasmusen, 1988;Cordell et al, 1993;Hansmann, 1996;Fraser and Zardkoohi, 1996). However, Altunbas et al (2001) find that German MBs have slight cost and profit advantages over German POBs.…”

Section: Introductionmentioning

confidence: 99%

Ownership structure, risk and performance in the European banking industry

Iannotta

Nocera

Sironi

2007

Journal of Banking & Finance

787

565

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International audienceWe compare the performance and risk of a sample of 181 large banks from 15 European countries over the 1999-2004 period and evaluate the impact of alternative ownership models, together with the degree of ownership concentration, on their profitability, cost efficiency and risk. Three main results emerge. First, after controlling for bank characteristics, country and time effects, mutual banks and government-owned banks exhibit a lower profitability than privately owned banks, in spite of their lower costs. Second, public sector banks have poorer loan quality and higher insolvency risk than other types of banks while mutual banks have better loan quality and lower asset risk than both private and public sector banks. Finally, while ownership concentration does not significantly affect a bank's profitability, a higher ownership concentration is associated with better loan quality, lower asset risk and lower insolvency risk. These differences, along with differences in asset composition and funding mix, indicate a different financial intermediation model for the different ownership forms

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“…A negative and signi®cant coe cient attaching to¯for banks would suggest that owners of commercial banks are structuring CEO compensation packages less heavily represented by salary than owners of other types of ®rms, ceteris paribus. One would expect such a relationship based on the ®ndings of the Gropper and Beard (1995) study. As a further test, a version of Equation 1 is oVered which deletes BANK from the set of industry regressors, and replaces it with ®rm dummies equal to one for each of 18 of the US commercial banks in the sample (zero otherwise).…”

Section: I T H E E C O N O M E T R I C M O D E Lmentioning

confidence: 95%

“…In fact, a search from the Journal of Economic Literature reveals just 14 such studies from 1980±1995. The most recent of that era includes that by Gropper and Beard (1995), which points out that expense preference behaviour (through employee compensation and occupancy costs) by American mutual and stock Savings and Loan Associations contributed to widespread insolvency in that industry during the 1980s.…”

Section: Introductionmentioning

confidence: 98%

Curbing expense preference behaviour in commercial banking: econometric evidence

Mixon¹,

Upadhyaya²

2001

Applied Financial Economics

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This study employs a large, micro-data set to examine the use of incentives and bonuses in the contracts of CEOs of banking firms in the USA in an effort by the owners of these banking concerns to curb potential expense preference behaviour by the CEO. Fixed-effects regression results confirm the prevalence of bonuses and stock options relative to salary for bank CEOs, and the model presented here works to support the principal-agent model in the economics and finance literature. Meta-analysis also establishes a link between a banking concern's efforts to curb expense preference behaviour and the percentage growth rate of the bank's net income.

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Insolvency, moral hazard and expense preference behavior: Evidence from US savings and loan associations

Cited by 18 publications

References 20 publications

The Power of Networks: Integration and Financial Cooperative Performance

The Power of Networks: Integration and Financial Cooperative Performance

Ownership structure, risk and performance in the European banking industry

Curbing expense preference behaviour in commercial banking: econometric evidence

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