Board Composition, Ownership Structure, Geographic Regulation, And Bank Holding Company Expenses

Abstract

The purpose of this article is to explore the impact of internal and external market conditions on bank holding company operating expenses.  An agency problem exists whenever management makes decisions which produce results contrary to shareholder interests.  Factors such as large-block shareholdings, management participation in ownership, product and labor market competition, outsider board participation and ease of market entry are believed to serve as mitigating factors.  Although there is evidence that product and ownership conditions have a significant effect operating expenses and other expenditures deemed to be preferred by management, there is scant evidence on the importance of these factors relative to board composition and entry barrier regulation.  Furthermore, most of the focus has been on relatively large banking institutions.  Employing a sample of small-to-medium banking firms from the 1980s, the results indicate that entry barrier regulation and board composition served as an important source of agency problems for these firms as reflected in the operating expense structure.