Interaction between ownership structure and systemic risk in the European financial sector

Download This Article

This work is licensed under a Creative Commons Attribution 4.0 International License.

Abstract

This empirical study examines the interaction between systemic risk and corporate governance in European financial institutions. Specifically, we investigate how two corporate governance issues, ownership concentration, and institutional investors’ presence, affect systemic risk. We use the conditional value-at-risk (CoVaR) approach (Adrian & Brunnermeier, 2016) to measure systemic risk and analyze balanced panel data of 96 listed banks from 19 European countries during the period 2011–2020. We choose the European context of its corporate governance’s heterogeneity, the presence of a high level of institutional ownership, and the financial turmoil it has been through over the period analyzed. Our findings reveal that ownership concentration decreases systemic risk, while the high presence of institutional investors increases it. This study contributes to the existing literature by shedding light on the relationship between corporate governance and systemic risk, and how it varies across different ownership structures and institutional contexts. Furthermore, this study provides valuable insights for regulators and policymakers in designing effective corporate governance frameworks that can mitigate systemic risk in financial institutions.

Keywords: Corporate Governance, Ownership Structure, Institutional Investors, Systemic Risk

Authors’ individual contribution: Conceptualization — C.B.P.; Methodology — R.C., L.P., and A.R.; Validation — L.P.; Formal Analysis — R.C. and A.R.; Investigation — R.C. and A.R.; Writing — Original Draft —R.C. and A.R.; Writing — Review & Editing — R.C., L.P., and A.R.; Supervision — C.B.P. and L.P.; Project Administration — C.B.P.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G10, G21, G32

Received: 20.02.2023
Accepted: 05.06.2023
Published online 07.06.2023

How to cite this paper: Bellavite Pellegrini, C., Camacci, R., Pellegrini, L., & Roncella, A. (2023). Interaction between ownership structure and systemic risk in the European financial sector. Corporate Ownership & Control, 20(3), 232–244. https://doi.org/10.22495/cocv20i3art15