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Competition and agency problems within banks: Evidence from insider lending

Author

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  • Girotti Mattia,
  • Salvadè Federica
Abstract
This paper studies whether greater competition can mitigate agency problems within banks. We measure the intensity of the agency conflict within a bank by the volume of loans that the bank lends to its insiders (e.g., executives). We first check that these loans are a form of private benefit. By exploiting interstate branching deregulation, we then show that banks react to greater competition by reducing insider lending, especially when the entry of new competitors may more strongly affect bank profitability. Results are robust to using various identification approaches and alternative indicators of agency conflict. We conclude that competitive pressure reduces managerial self-dealing.

Suggested Citation

  • Girotti Mattia, & Salvadè Federica, 2021. "Competition and agency problems within banks: Evidence from insider lending," Working papers 831, Banque de France.
    • Handle: RePEc:bfr:banfra:831
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    Cited by:

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    More about this item

    Keywords

    Banks; Agency Problems; Private Benefits; Competition; Insider Loans;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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