Abstract
This paper examines agency theory arguments in the banking industry by analyzing the effect of four variables that proxy for agency costs—earnings volatility, managers' portfolio diversification losses, bank size, and standard deviation of bank equity returns—on the three financial policy variables of managerial stock ownership, leverage, and dividend yield. It is one of the first studies that examines the determination of financial policy variables, in light of agency concerns, in the banking industry. The study examines the largest 104 U.S. banks during the period 1985–1989. Evidence suggests that bank size and a measure of the managers' portfolio diversification opportunity set affect the bank's level of managerial stock ownership, leverage and dividends.
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Mercado-Mendez, J., Willey, T. Agency costs in the banking industry: An examination of ownership behavior, leverage and dividend policies. J Econ Finan 19, 105–117 (1995). https://doi.org/10.1007/BF02920617
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DOI: https://doi.org/10.1007/BF02920617