A case study of organizational form and risk shifting in the savings and loan industry

Abstract

I analyze the investment and funding strategies of two thrifts, one stock owned and one mutually owned, from 1983 to 1988. Despite their similarities prior to 1983, the stock thrift implemented a riskier financial strategy and did so only after converting to stock ownership. Although this strategy ultimately led to its failure, the stock thrift still made significant payouts to its controlling shareholders. This case study illustrates in stark terms the relation between organizational form and risk shifting in the thrift industry.