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Corporate Control, Portfolio Choice, and the Decline of Banking
Abstract
In the 1980s, U.S. banks became systematically less profitable and riskier as nonbank competition eroded the profitability of banks' traditional activities. Bank failures rose exponentially during this decade. The leading explanation for the persistence of these trends centers on fixed-rate deposit insurance: the insurance gives bank equityholders an incentive to take on risk when the value of bank charters falls. We propose and test an alternative explanation based on corporate control considerations. We show that managerial entrenchment played a more important role than did the moral hazard associated with deposit insurance in explaining the recent behavior of the banking industry.
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Cited by
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Claessens, S., Demirgüç-Kunt, A., & Huizinga, H. (2001) · Journal of Banking & Finance · doi:10.1016/s0378-4266(00)00102-3 · Cited by 1,644
Universal banking and the performance of German firms
Gorton, G., & Schmid, F. A. (2000) · Journal of Financial Economics · doi:10.1016/s0304-405x(00)00066-0 · Cited by 678
Self-citationOwnership structure and risk in publicly held and privately owned banks
Barry, T. A., Lepetit, L., & Tarazi, A. (2011) · Journal of Banking & Finance · doi:10.1016/j.jbankfin.2010.10.004 · Cited by 426
Business Administration, Y. U., Tubaishat*, H., Faouri, R., Public Administration, Y. U., Alshammari, H., & Business Administration, Y. U. (2021) · International Journal of Management and Humanities · doi:10.35940/ijmh.g1262.035721 · Cited by 4
Metadata
- Authors
- Gorton, G., & Rosen, R.
- Venue
- The Journal of Finance
- Publisher
- JSTOR
- Published
- 1995-12
- Volume
- 50
- Issue
- 5
- Pages
- 1377
- ISSN
- 0022-1082 (ISSN-L)
- OpenAlex
- W4300500627
- Cited by
- 186
- References
- 0
- FWCI
- 13.01
- Type
- journal article
- Language
- en
- Open access
- closed
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- Gorton, G., & Rosen, R. (1995). Corporate Control, Portfolio Choice, and the Decline of Banking. The Journal of Finance. https://doi.org/10.2307/2329321
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
