There is extensive debate about the role banks play as reference shareholders in companies. There are positive aspects, such as the support banks provide for long-term investments by their investee companies. These investments include those involving R projects, which generate high net worth. Among the negative aspects is the risk that banks use their power of influence as reference shareholders to obtain private benefits. Typical examples are forcing investee companies to accept loans granted by the owner banks on worse terms than alternatives present in the credit markets. Therefore, the effect of bank shareholding on the performance of investee companies is an empirical question to be analyzed that will depend on various elements.
In this paper, we focus on two elements that, in turn, are interconnected: i) the amount of bank shareholding; ii) the pressure exerted by financial markets as financing alternatives to banks. The traditional view is that financial markets compete with banks to provide financing to companies. Under this premise, banks with power in companies will try to protect their power by reducing the role that financial markets play in the financing of companies. One way to achieve this objective is by hindering the issuance of negotiable financial instruments in the capital markets (issuance of shares and bonds). However, this “competitive” view between the bank financing channel and the market-based channel is increasingly giving way to a more complementary view between both channels, in such a way that banks complete the functioning of financial markets as participants in activities such as backing the issuance of financial assets. This work facilitates, on the one hand, the raising of capital by companies and, on the other hand, the generation of business for banks in the form of premiums they charge to issuing companies for the services provided. We see, therefore, that there are opposing effects regarding the interest that banks have in facilitating the participation in the financial markets of the companies over which they have ownership power.
In this paper, we investigate which effect is more important and connect it with the size of the banks’ stake in the companies. We reason that if the banks’ stake in the companies is not very large (in any case less than 50%), the shareholder banks try to prevent/limit the participation of the companies in the financial markets. In this scenario, banks try to obtain private benefits by using their power to force the acceptance by companies of financing conditions that are onerous for them as borrowers but beneficial for banks as lenders. The cost of this policy is borne by the minority shareholders of the investee company. This is what is known as “expropriation” of minority shareholders. However, if the banks’ stake in the companies is high, they favor the presence of the companies in the financial markets since this fact, on the one hand, does not significantly threaten the power of the banks and, on the other hand, opens up to the banks possibilities of future business associated with backing the issuance of financial assets in the financial markets. In this scenario, there is no “expropriation” of the minority shareholders, among other things because the bank with its high stake in the companies would bear a high cost as a shareholder of setting very onerous conditions in the loans it grants as a creditor. In this environment, there is a natural “strategic” collaboration between banks and financial markets, which ends up benefiting both banks and companies.
We therefore establish a hypothesis of a U-shaped relationship between the participation of banks in companies and the probability of these in the issuance of financial assets.
The tension between the competitive situation between banks and markets and the situation of collaboration between these actors is, in turn, largely connected with the institutional environment. In non-Anglo-Saxon (continental European) countries, there is a relationship of “substitution” between bank and market financing and a negative relationship is expected between bank participation in companies and the activity of these in the financial markets (we would be located in the region to the left of the previous graph). That is, banks try to hinder the presence of their investee companies in the financial markets. On the other hand, in Anglo-Saxon countries (developed financial markets), there is a natural complementarity of banks and financial markets. Specifically, banks complete the financial markets by reducing their information asymmetries and obtain as consideration large profits through activities such as backing the issuance of financial assets. We would be in the area to the right of the previous graph where increases in bank shareholding favor the issuance of financial assets.
In the study we carried out, we empirically test the existence of the above relationships using an international database of 5730 companies distributed among 59 countries over the period between 2000 and 2013.
A series of recommendations can be extracted from the work:
1) Firstly, the work questions certain calls to reduce the participation of banks in companies in order to promote the presence of these in the financial markets. If we are in the region on the right in the previous graph (high shareholding of banks), reductions in the holdings of banks reduce to a greater extent the probability that companies issue negotiable financial instruments and with this the presence of these in the financial markets is hindered.
2) Secondly, the relationship between banks and financial markets depends critically on the institutional environment in which we are located. In environments of less development of the financial markets (non-Anglo-Saxon countries), there is a relationship of substitution between banks and financial markets in such a way that to incentivize the participation of companies in the financial markets, the recommendation is the reduction in the participation of banks in the companies (area to the left of the previous graph). However, in countries with high development of the financial markets (Anglo-Saxon countries), there is a natural complementarity between banks and financial markets and the increases in the shareholding of banks in the companies favor the presence of these in the capital markets (area to the right of the graph).
3) Finally, it is relevant to take into consideration the type of shareholders that accompany the banks in the ownership structure of the companies. Specifically, it is important to introduce heterogeneity in the ownership structure of the companies. Heterogeneous configurations in which banks as shareholders coexist with shareholders of different types (