Enterprise value and risk taking in the banking industry: Cooperatives vs. corporations☆

This study leverages on a quasi-natural experiment to shed light on the relative merit of the cooperative versus the corporate form. In Italy, a new law forced some cooperative banks to turn into joint stocks banks. This change of ownership structure proves to be Pareto improving for all financial claimholders since it either increases or leaves the value of equity and debt of any seniority unchanged, while reducing the market-based metrics of risks. This evidence challenges the view that the demutualization increases the asset substitution risk, transferring wealth from bondholders to shareholders and heightening the firm risk profile. Therefore, a transition from a cooperative to a corporate form should not cause stability concerns in the banking industry.