Financial Innovation, Investment Opportunities, and Corporate Policy Choices for Large Bank Holding Companies

M. Cary Collins; David W. Blackwell; Joseph F. Sinkey

doi:10.1111/j.1540-6288.1994.tb00819.x

Financial Innovation, Investment Opportunities, and Corporate Policy Choices for Large Bank Holding Companies

M. Cary Collins, David W. Blackwell, Joseph F. Sinkey

Research output: Contribution to journal › Article › peer-review

15 Scopus citations

Abstract

This study determines the effects of agency costs on bank management by investigating the relationship between investment opportunities and corporate policy choices for large bank holding companies from 1977 to 1985. The financial innovations in this period resulted in numerous investment opportunities for banks and their holding companies. The market‐to‐book ratio, a proxy for these opportunities or growth options, reveals significant differences in the opportunity sets of regional and money center banks. Since the growth options are negatively related to both debt financing and dividend payout, a policy prescription for reducing bank holding company (BHC) leverage is to allow bank/BHC investment opportunities to expand through product and geographic deregulation.

Original language	English
Pages (from-to)	223-247
Number of pages	25
Journal	Financial Review
Volume	29
Issue number	2
DOIs	https://doi.org/10.1111/j.1540-6288.1994.tb00819.x
State	Published - May 1994

ASJC Scopus subject areas

Finance
Economics and Econometrics

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AB - This study determines the effects of agency costs on bank management by investigating the relationship between investment opportunities and corporate policy choices for large bank holding companies from 1977 to 1985. The financial innovations in this period resulted in numerous investment opportunities for banks and their holding companies. The market‐to‐book ratio, a proxy for these opportunities or growth options, reveals significant differences in the opportunity sets of regional and money center banks. Since the growth options are negatively related to both debt financing and dividend payout, a policy prescription for reducing bank holding company (BHC) leverage is to allow bank/BHC investment opportunities to expand through product and geographic deregulation.

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Financial Innovation, Investment Opportunities, and Corporate Policy Choices for Large Bank Holding Companies

Abstract

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