Book Description

This paper is concerned with the relationship between ownership structure and risk taking in the U.S. thrift industry along with the impact of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) on this relationship. Our results, based on balance sheet and market measures of risk, suggest that insider controlled thrifts were more likely to engage in risk taking behavior prior to 1989 than were diversely held institutions. FIRREA seems to have curtailed much of the risk taking behavior of these institutions; in fact, some evidence suggests that insider controlled thrifts may have actually engaged in less risk taking behavior than their diversely held counterparts after 1989. We find inverse relationships between risk-taking behavior and levels of institutional shareholdings during all periods. This finding, along with the finding that increased risk-taking does not increase returns to thrift shareholders, suggests that the motive for risk-taking behavior on the part of insider held thrifts may not have been the maximization of the acirc;not;Soptionacirc;not;? value associated with shares as reported elsewhere. We do find evidence that entrenched managers may have generated significant private benefits for themselves.