Banks as Shareholders : The Spanish Model of Corporate Governance

Compared to the Anglo-Saxon framework on which most of the financial research has focused, in many European corporate systems such as Spain, banks and other financial intermediaries are more important than capital markets. In addition to lending, banks usually own significant proportions of shares and sit at the board of directors. Our results for a sample of 142 non-financial firms between 1999 and 2002 show that banks play an outstanding role in the corporate governance of the Spanish firms. More specifically, due to the banking specialization in monitoring and control, we find that banks have a dual and very relevant influence on the performance of the firms. For bank-controlled firms, bank shareholdings can enable colluding interactions among banks and, thus, reduce the performance of the firm. On the contrary, for non-bank controlled firms, bank shareholdings improve the corporate governance and increase the performance of the firm. This effect is particularly significant for the firms in which bank scrutiny is more crucial: when the largest shareholder has voting rights in excess of his cash flow rights, and when the control of the largest shareholder can be more contested