Investor horizons and bank risk

Seymour, Trent (2015). Investor horizons and bank risk Honours Thesis, School of Business, The University of Queensland.

Attached Files (Some files may be inaccessible until you login with your UQ eSpace credentials)
Name Description MIMEType Size Downloads
Trent_SEYMOUR_BComHons.pdf Thesis full text application/pdf 1.55MB 0
Author Seymour, Trent
Thesis Title Investor horizons and bank risk
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 2015
Thesis type Honours Thesis
Supervisor Shams Pathan
Total pages 108
Language eng
Subjects 1503 Business and Management
Formatted abstract
This thesis examines the extent to which the investment horizons of institutional investors influence the risk of US banks. Four market-based measures of risk are used (total, systematic, idiosyncratic and systemic) and the investment horizons of institutional investors are gauged by their portfolio turnover. This empirical investigation of the US banking industry over the 1991-2013 sample period suggests that short-term institutional investors increase bank risk and long-term institutional investors decrease bank risk. This is especially the case after deregulation and at banks with strong corporate governance.

The results are robust to accounting-based measures of bank risk and alternate proxies for the horizons of institutional investors. Two identification strategies are used to suggest that these relations are causal, and fixed-effects regressions indicate that the results are not driven by unobservable time-invariant factors. The business policy channels affecting these various risk levels are then investigated. In contrast to short-term investors, long-term investors are associated with less exposure to riskier non-interest income activities, stricter lending standards, more stable funding sources and substantially better stock performanceduring the crisis.

Overall, this paper is the first to empirically validate that in terms of bank risk, the horizons of institutional investors do make a difference. In particular, bank managers face a trade-off between acquiescing to short-term shareholders who are committed
to increasing risk and meeting the demands of long-term shareholders. 

Citation counts: Google Scholar Search Google Scholar
Created: Wed, 23 Mar 2016, 08:47:42 EST by Susan Peeters on behalf of UQ Business School