| Summary: | We assess the influence of insider ownership on the market value and risk of 123 banks in 23 countries included in the Dow Jones STOXX Global 1800 Index. Our mixed effects model, controlling for bank and country specific influences, shows a positive relation between insider ownership and market value (Tobin’s Q, ROA and ROE) and a negative relation between insider ownership and risk (EDF, Z-Score and NPL/L). Our results remain robust to reverse causality. The relation between insider ownership and bank market value attains a maximum for 0.5-1.5% (Q), 0.0-1.3% (ROA, ROE) beyond which the costs start outweighing the benefits. The figures for risk measures vary positively in the ranges 0.0-0.3% (EDF), 0.0-1.3% (Z-score) and 0.0-1.3% (NPL/L) after which the benefits start outweighing the costs. In their effort to immunize the global financial system from systemic risks, central banks around the world should find our results relevant for regulation and supervision.
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