The impact of management and board ownership on profitability in banks with different strategies

In this study I combine the ownership and diversification literature and show that the agency problem varies across traditional, diversified and non-traditional banks. In a sample of European banks, I find that management ownership has a positive impact on profitability in non-traditional banks, whereas board ownership has a positive impact on profitability in traditional banks. These findings indicate that management ownership is important in opaque banks, which are difficult to monitor, whereas board ownership is important in banks where the government guaranteed safety-net reduces the monitoring incentive of depositors, but which are not too complex or opaque for the board to monitor.

► I examine the joint impact of ownership and strategy on profitability in European banks. ► The government guaranteed safety-net and level of opacity affects the efficiency of corporate governance mechanisms. ► Management ownership has a positive impact on profitability in non-traditional banks, which are difficult to monitor. ► Board ownership has a positive impact on profitability in traditional banks, where monitoring incentives are reduced.