Insider ownership, power, and bank value

Abstract

This paper examines the influence of insider ownership and power on bank value. We measure insider ownership as the fraction of the bank’s common stock owned by its directors and officers as a group, and insider power using the Milnor and Shapley (1978) power index for oceanic voting games. Using a sample of U.S. banks, we find that insider ownership is positively related to bank value, while insider power is negatively related to bank value. These results are consistent with the agency theory literature. To the extent that regulators want to increase bank value, they should encourage equity ownership by bank insiders and outside blockholders.