Information Content of Bank Equity Stakes. Theory and Evidence

The paper analyzes the information and agency cost effects of bank equity stakes in a universal banking system where banks can also be shareholders in borrowing firms. We test the agency and signaling hypotheses explaining the bank motivations for holding equity of borrowing firms in the Spanish market and we analyze the share abnormal returns around the announcements of bank equity holdings. The results are more consistent with the signaling explanation because the announcements of bank equity stakes only have a positive information effect when the bank increases its debt in the firm. A simple theoretical model consistent with the empirical results is developed. JEL Classification: G21, G24, G28.