Institutional Ownership and the Propagation of Systemic Risk among Banks

George, Emmanuel T. De; Reiter, Nayana; Synn, Christina; Williams, Christopher

doi:10.2139/ssrn.3420516

Cited by 3 publications

(13 citation statements)

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“…Common ownership can be thought to elevate the risk of contagion among banks in several ways -either through the common owner or directly from one institution to another. For example, in the face of a shock to one bank's equity price, a common owner may be incentivized to rebalance its portfolio by selling shares in another bank or shifting its funds away from the sector entirely, spreading risk between institutions and heightening the correlation of their returns (De George et. al 2019).…”

Section: Figurementioning

confidence: 99%

“…al 2019). De George et. al (2019) note that this rebalancing may have an adverse effect on other stocks in the same portfolio if an investor faces increased redemptions.…”

Section: Figurementioning

confidence: 99%

“…Similarly, De George et al (2019) propose a measure of codependence in the tails of banks' equity returns when looking at the effects of institutional ownership on contagion risk. They use the marginal expected shortfall (MES), or the expected losses of a bank conditional on banking sector's losses, to measure tail-risk correlation.…”

Section: Ii1 Literature (A) Common Ownershipmentioning

confidence: 99%

“…Important in an analysis of the effects of common ownership on contagion risk is to explore potential mechanisms by which common ownership, through common owners or bilaterally between firms, transmits or amplifies risk. One such channel, proposed by De George et al (2019), is a rebalancing mechanism by which an adverse price impact in one stock in an investor's portfolio incentivizes the investor to rebalance his portfolio away from other stocks within that portfolio, particularly if those stocks are issued by firms in the same sector as the firm that faced the shock. In other words, an investor may offload shares away from an underperforming sector, spreading the effects of the price decline beyond its immediate impact on the source firm.…”

Section: (D) Mechanisms For Contagion Riskmentioning

confidence: 99%

“…Cheng, Xie, and Zhong (2018) find that there is a positive correlation in the tail-risk between two firms connected through a common institutional blockholder, suggesting a relationship between common ownership and systemic risk. Their dataset runs from 1980 to 2016 De George et. al (2019).…”

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Firstly, thank you to Professor Abigail Hornstein. You have been an amazing thesis advisor and guide throughout the thesis writing process. This year has brought new challenges to thesis writing. You have been exceptionally kind and patient in working around those challenges, in meeting with me countless times on Zoom to discuss my thesis, and to provide me guidance and structure as I far away and near the finish line. Thank you for supporting my ideas and making this process an incredibly rewarding one. I would like to thank my parents, Cindy and Bob, for their unwavering love and support throughout this entire process and beyond. You both are always there for me, are always willing to lend a hand and provide me with guidance when I need some. Everything I have accomplished in my life is because of the support and caring you have given and shown me. From helping me with homework when I was younger, to driving me to sports games, to playing Cat Stevens in the car when I was nervous for my first standardized test in fifth grade. To talking with me about the world -about the Vietnam War at Mohonk or the Affordable Care Act on the way to Burlington. To loving our dog, Callie, and taking special care of her -taking her on walks and to the park, running around with her and making sure she has playdates. To watching late night movies with me. To just teaching me how to be compassionate and kind. To showing me that your compassion and kindness is endless. You both are my rocks. And you never stop listening to me when I need a lending ear. I love you both.Aaron, I have so much admiration for your drive, ambition, and intellectual curiosity. You are a formidable acquirer of knowledge, the best person to talk about wonky economics topics with, and my best friend. Claudia, my other best friend, my side kick, my telepathic twin. The way you carry yourself in the world, the love you give to the people closest to you, is something special. Your intense interest in the world is something I try to mimic. Your companionship at each stage of my life is something I cherish.To my friends at 46 Fountain, thank you for your endless patience with me during my hours sitting at the kitchen table working in R. You've seen me at my worst and my best. You are friends unconditionally.To all my friends from home and Wesleyan, you are my support system.

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Section: Figurementioning

confidence: 99%

“…al 2019). De George et. al (2019) note that this rebalancing may have an adverse effect on other stocks in the same portfolio if an investor faces increased redemptions.…”

Section: Figurementioning

confidence: 99%

Section: Ii1 Literature (A) Common Ownershipmentioning

confidence: 99%

Section: (D) Mechanisms For Contagion Riskmentioning

confidence: 99%

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Common Mutual Fund Ownership and Systemic Risk*

Iselin

Liao

Zhang

2021

Contemporary Accting Res

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We examine whether bank connections via common mutual fund ownership serve as a contagion channel affecting the systemic risk of the banking system. Examining this relation is important because common mutual fund ownership has increased dramatically over the past 20 years, and a buildup of systemic risk was at the heart of the 2008–2009 financial crisis. We predict and document that the extent of a bank's connection with other banks via common ownership increases its contribution to systemic risk. We further predict and find that this association is primarily driven by passive mutual funds. We provide evidence that common passive ownership results in higher systemic risk through two mechanisms: nondiscretionary sell‐offs of bank stocks and a common pattern of voting. Our results are also robust to two alternate instrumental variable analyses. This study contributes to the literature by documenting an unintended, macro‐level consequence of common mutual fund ownership. Our findings broaden the understanding of common ownership as one mechanism through which systemic risk materializes and should be particularly relevant for regulators who seek to prevent future systemic failures.

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Interaction between ownership structure and systemic risk in the European financial sector

Pellegrini

Camacci

Pellegrini

et al. 2023

COC

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This empirical study examines the interaction between systemic risk and corporate governance in European financial institutions. Specifically, we investigate how two corporate governance issues, ownership concentration, and institutional investors’ presence, affect systemic risk. We use the conditional value-at-risk (CoVaR) approach (Adrian & Brunnermeier, 2016) to measure systemic risk and analyze balanced panel data of 96 listed banks from 19 European countries during the period 2011–2020. We choose the European context of its corporate governance’s heterogeneity, the presence of a high level of institutional ownership, and the financial turmoil it has been through over the period analyzed. Our findings reveal that ownership concentration decreases systemic risk, while the high presence of institutional investors increases it. This study contributes to the existing literature by shedding light on the relationship between corporate governance and systemic risk, and how it varies across different ownership structures and institutional contexts. Furthermore, this study provides valuable insights for regulators and policymakers in designing effective corporate governance frameworks that can mitigate systemic risk in financial institutions.

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Institutional Ownership and the Propagation of Systemic Risk among Banks

Cited by 3 publications

References 40 publications

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Common Mutual Fund Ownership and Systemic Risk*

Interaction between ownership structure and systemic risk in the European financial sector

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