The role of stakeholder orientation and regulatory oversight on bank behaviour

Abstract

This thesis analyses the impact of stakeholder orientation and regulatory oversight on the behaviour of the United States (US) banks. In Chapter 2, we investigate the impact of stakeholder orientation on bank payout policy. As a quasi-experimental setting, we exploit the staggered enactment of constituency statutes across US states, which broaden the scope of managerial duties to an extended group of stakeholders. Our results for the period 1986-2012 suggest that bank holding companies (BHCs) incorporated in states enacting constituency statutes experience significant declines in total payouts, which is driven by a decline in share repurchases. This observed decline in share repurchases is stronger for banks with sizeable implicit claims, lower transparency and substantial agency conflicts. In Chapter 3, we investigate the impact of stakeholder orientation on the financial reporting quality of banks. Using the state-level enactment of constituency statutes as an exogenous variation in stakeholder orientation, and a sample of US commercial banks over the period 1980-2010, we find that the financial reporting quality improves for the stakeholder-orientated banks. Moreover, stakeholder-orientated banks prioritise internal stakeholders such as employees and depositors. In Chapter 4, we investigate how a change in regulatory oversight affects bank risk, using the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 as a setting. Using a sample of BHCs covering the period 2015Q1 through 2020Q1, we find that risk increases for large BHCs affected by a change in regulatory oversight. In addition to increasing bank level risk, affected BHCs increase their respective contribution to the systemic risk. These BHCs also experience higher profitability, increased market valuation and reduced compliance costs.