Bank Ownership, Free Cash Flow, and Agency Behavior.
This paper uses bank holding company financial report data to analyze agency behavior differences between public (listed on a stock exchange) and private banks. We provide evidence consistent with higher perquisite consumption and risk aversion among managers at public banks. We find weak evidence of greater value-destroying acquisitions by public bank managers. We provide strong evidence that managers of banks with large free cash flows make loans of average risk for below-market interest rates and experience higher loan losses, consistent with slacking through lack of proper risk assessment and loan monitoring.
Haggard, K. Stephen, and John S. Howe. Bank Ownership, Free Cash Flow, and Agency Behavior." Banking & Finance Review 7, no. 1 (2015)."
Finance and General Business