Bank ownership, rm value and rm capital structure in Europe*

We investigate the role of banks in the ownership structure of non-…nancial …rms. Distinguishing between banks and other institutional investors as shareholders, we examine the relationship between …nancial institution ownership and the performance of the …rms in which they hold equity. We control explicitly for the capital structure decision of the …rms and the ownership decision of …nancial institutions in a simultaneous equations model. Our main …nding is that there is a negative relationship between …nancial institution ownership and the market value of …rms, measured as the Tobin’s Q. This is in contradiction with the monitoring hypothesis. Key words: Financial institution ownership, Firm value JEL classi…cation: G32, G20 * The authors thank Lieven Baele, Oyvind Bohren, Punnoose Jacob (Reuben), Doris Neuberger, Neeltje van Horen and participants at the FINESS conference and Copenhagen workshop for corporate governance for helpful comments. Financial support from EIEF and the European Commission (7th Framework Programme, Grant Agreement No. 217266) is gratefully acknowledged. Corresponding author : [email protected] (Lieven Baert)