Get access

Too Dispersed to Monitor? Ownership Dispersion, Monitoring, and the Prediction of Bank Distress




  • Excellent research assistance was provided by Sophie Cancel, Frédérik Ducrozet, and Adrian Roche. We received very helpful comments from François Morin, Patrick Musso, Adrian Pop, Maria Psilaki, Laurence Scialom, Amine Tarazi, and also from participants at the WEAI 84th annual conference, Vancouver, and the EEA-ESEM Congress, Barcelona. We also thank the two anonymous referees and Robert DeYoung, the JMCB editor, for their decisive suggestions. All errors are ours.

Tristan AuvrayandOlivier Brossardare at University of Toulouse, LEREPS-Université Toulouse 1-Capitole, Toulouse Political Sciences Institute (IEP), Toulouse, France (; and


This paper conducts an empirical assessment of the theories stating that ownership concentration improves the quality of shareholders’ monitoring. In contrast with other studies, we do not use regressions of risk/performance on ownership concentration. Instead, we build an early warning model of bank distress that includes a leading indicator derived from banks’ share price, the Merton-KMV distance to default (DD). The significance of this indicator depends on the efficacy of shareholders’ monitoring. On a sample of European banks, we show that the predictive power of the DD is satisfactory only when banks’ shareholding is characterized by the presence of blockholders.

Get access to the full text of this article