IDEAS home Printed from https://ideas.repec.org/a/eee/intfin/v46y2017icp128-146.html
   My bibliography  Save this article

Strong boards, ownership concentration and EU banks’ systemic risk-taking: Evidence from the financial crisis

Author

Listed:
  • Battaglia, Francesca
  • Gallo, Angela

Abstract

We examine the effects of board composition and ownership on traditional measures of bank risk and proxies of bank tail and systemic risk. Both banks’ corporate governance shortcomings and systemic risk-taking have been recognized among the potential causes of the 2007 financial crisis. Yet, their interaction has received less attention so far. Based on a sample of 40 European banks over the period 2006–2010, we find that the boards ‘characteristics affect banks’ systemic risk, except for board independence and that this relation depends on capital regulations, banking systems’ ownership structures and bank activity restrictions.

Suggested Citation

  • Battaglia, Francesca & Gallo, Angela, 2017. "Strong boards, ownership concentration and EU banks’ systemic risk-taking: Evidence from the financial crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 128-146.
    • Handle: RePEc:eee:intfin:v:46:y:2017:i:c:p:128-146
    DOI: 10.1016/j.intfin.2016.08.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1042443116300713
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.intfin.2016.08.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Joseph G. Altonji & Todd E. Elder & Christopher R. Taber, 2005. "Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 151-184, February.
    2. Viral V. Acharya & Lasse H. Pedersen & Thomas Philippon & Matthew Richardson, 2017. "Measuring Systemic Risk," The Review of Financial Studies, Society for Financial Studies, vol. 30(1), pages 2-47.
    3. Milton Harris & Artur Raviv, 2008. "A Theory of Board Control and Size," The Review of Financial Studies, Society for Financial Studies, vol. 21(4), pages 1797-1832, July.
    4. Pornsit Jiraporn & Pandej Chintrakarn, 2009. "Staggered Boards, Managerial Entrenchment, and Dividend Policy," Journal of Financial Services Research, Springer;Western Finance Association, vol. 36(1), pages 1-19, August.
    5. De Jonghe, Olivier, 2010. "Back to the basics in banking? A micro-analysis of banking system stability," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 387-417, July.
    6. James R. Barth & Gerard Caprio Jr. & Ross Levine, 2002. "Financial Regulation and Performance: Cross-COuntry Evidence," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 4, pages 113-142, Central Bank of Chile.
    7. Charles Goodhart & Miguel Segoviano, 2009. "Banking Stability Measures," FMG Discussion Papers dp627, Financial Markets Group.
    8. Pathan, Shams, 2009. "Strong boards, CEO power and bank risk-taking," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1340-1350, July.
    9. Philipp Hartmann & Stefan Straetmans & Casper de Vries, 2007. "Banking System Stability. A Cross-Atlantic Perspective," NBER Chapters, in: The Risks of Financial Institutions, pages 133-188, National Bureau of Economic Research, Inc.
    10. Nina Baranchuk & Philip H. Dybvig, 2009. "Consensus in Diverse Corporate Boards," The Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 715-747, February.
    11. Emilia Peni & Sami Vähämaa, 2012. "Did Good Corporate Governance Improve Bank Performance during the Financial Crisis?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 41(1), pages 19-35, April.
    12. Acharya, Viral V. & Schnabl, Philipp & Suarez, Gustavo, 2013. "Securitization without risk transfer," Journal of Financial Economics, Elsevier, vol. 107(3), pages 515-536.
    13. Caprio, Gerard & Laeven, Luc & Levine, Ross, 2007. "Governance and bank valuation," Journal of Financial Intermediation, Elsevier, vol. 16(4), pages 584-617, October.
    14. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
    15. Carl Pacini & William Hillison & David Marlett & Deanna Burgess, 2005. "Corporate governance and the market impact of the Financial Services Modernization act of 1999 on bank returns and trading volume," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 29(1), pages 46-72, March.
    16. Berger, Allen N. & Saunders, Anthony & Scalise, Joseph M. & Udell, Gregory F., 1998. "The effects of bank mergers and acquisitions on small business lending," Journal of Financial Economics, Elsevier, vol. 50(2), pages 187-229, November.
    17. Jonathan R. Macey & Maureen O'Hara, 2003. "The corporate governance of banks," Economic Policy Review, Federal Reserve Bank of New York, vol. 9(Apr), pages 91-107.
    18. Webb Cooper, Elizabeth, 2009. "Monitoring and governance of private banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 253-264, May.
    19. Renée Birgit Adams, 2012. "Governance and the Financial Crisis," International Review of Finance, International Review of Finance Ltd., vol. 12(1), pages 7-38, March.
    20. Douglas W. Diamond & Raghuram G. Rajan, 2009. "The Credit Crisis: Conjectures about Causes and Remedies," American Economic Review, American Economic Association, vol. 99(2), pages 606-610, May.
    21. Aebi, Vincent & Sabato, Gabriele & Schmid, Markus, 2012. "Risk management, corporate governance, and bank performance in the financial crisis," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3213-3226.
    22. Pichaphop Chalermchatvichien & Seksak Jumreornvong & Pornsit Jiraporn & Manohar Singh, 2014. "The Effect of Bank Ownership Concentration on Capital Adequacy, Liquidity, and Capital Stability," Journal of Financial Services Research, Springer;Western Finance Association, vol. 45(2), pages 219-240, April.
    23. Gropp, Reint E. & Köhler, Matthias, 2010. "Bank owners or bank managers: who is keen on risk? Evidence from the financial crisis," ZEW Discussion Papers 10-013, ZEW - Leibniz Centre for European Economic Research.
    24. Beltratti, Andrea & Stulz, René M., 2012. "The credit crisis around the globe: Why did some banks perform better?," Journal of Financial Economics, Elsevier, vol. 105(1), pages 1-17.
    25. Mike Burkart & Denis Gromb & Fausto Panunzi, 1997. "Large Shareholders, Monitoring, and the Value of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 693-728.
    26. Segoviano, Miguel A. & Goodhart, Charles, 2009. "Banking stability measures," LSE Research Online Documents on Economics 24416, London School of Economics and Political Science, LSE Library.
    27. Yamai, Yasuhiro & Yoshiba, Toshinao, 2002. "Comparative Analyses of Expected Shortfall and Value-at-Risk (3): Their Validity under Market Stress," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(3), pages 181-237, October.
    28. Black, Bernard S. & Jang, Hasung & Kim, Woochan, 2006. "Predicting firms' corporate governance choices: Evidence from Korea," Journal of Corporate Finance, Elsevier, vol. 12(3), pages 660-691, June.
    29. Akhigbe, Aigbe & Martin, Anna D., 2008. "Influence of disclosure and governance on risk of US financial services firms following Sarbanes-Oxley," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2124-2135, October.
    30. Benjamin E. Hermalin & Michael S. Weisbach, 2003. "Boards of directors as an endogenously determined institution: a survey of the economic literature," Economic Policy Review, Federal Reserve Bank of New York, vol. 9(Apr), pages 7-26.
    31. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2008. "Boards: Does one size fit all," Journal of Financial Economics, Elsevier, vol. 87(2), pages 329-356, February.
    32. Baltagi, Badi H. & Wu, Ping X., 1999. "Unequally Spaced Panel Data Regressions With Ar(1) Disturbances," Econometric Theory, Cambridge University Press, vol. 15(6), pages 814-823, December.
    33. Grant Kirkpatrick, 2009. "The corporate governance lessons from the financial crisis," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2009(1), pages 61-87.
    34. Barbara Casu & Andrew Clare & Anna Sarkisyan & Stephen Thomas, 2011. "Does securitization reduce credit risk taking? Empirical evidence from US bank holding companies," The European Journal of Finance, Taylor & Francis Journals, vol. 17(9-10), pages 769-788, November.
    35. Andres, Pablo de & Vallelado, Eleuterio, 2008. "Corporate governance in banking: The role of the board of directors," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2570-2580, December.
    36. repec:fip:fedhpr:y:2010:i:may:p:65-71 is not listed on IDEAS
    37. Rich Fortin & Gerson M. Goldberg & Greg Roth, 2010. "Bank Risk Taking at the Onset of the Current Banking Crisis," The Financial Review, Eastern Finance Association, vol. 45(4), pages 891-913, November.
    38. Laeven, Luc & Levine, Ross, 2009. "Bank governance, regulation and risk taking," Journal of Financial Economics, Elsevier, vol. 93(2), pages 259-275, August.
    39. Schranz, Mary S, 1993. "Takeovers Improve Firm Performance: Evidence from the Banking Industry," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 299-326, April.
    40. Renée B. Adams & Daniel Ferreira, 2007. "A Theory of Friendly Boards," Journal of Finance, American Finance Association, vol. 62(1), pages 217-250, February.
    41. Erkens, David H. & Hung, Mingyi & Matos, Pedro, 2012. "Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide," Journal of Corporate Finance, Elsevier, vol. 18(2), pages 389-411.
    42. Hanazaki, Masaharu & Horiuchi, Akiyoshi, 2003. "A review of Japan's bank crisis from the governance perspective," Pacific-Basin Finance Journal, Elsevier, vol. 11(3), pages 305-325, July.
    43. Wang, Tawei & Hsu, Carol, 2013. "Board composition and operational risk events of financial institutions," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 2042-2051.
    44. Allen N. Berger & Björn Imbierowicz & Christian Rauch, 2016. "The Roles of Corporate Governance in Bank Failures during the Recent Financial Crisis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(4), pages 729-770, June.
    45. Lehar, Alfred, 2005. "Measuring systemic risk: A risk management approach," Journal of Banking & Finance, Elsevier, vol. 29(10), pages 2577-2603, October.
    46. Andrew Ellul & Vijay Yerramilli, 2013. "Stronger Risk Controls, Lower Risk: Evidence from U.S. Bank Holding Companies," Journal of Finance, American Finance Association, vol. 68(5), pages 1757-1803, October.
    47. Dale F. Gray & Robert C. Merton & Zvi Bodie, 2007. "New Framework for Measuring and Managing Macrofinancial Risk and Financial Stability," NBER Working Papers 13607, National Bureau of Economic Research, Inc.
    48. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    49. Gregory Sierra & Eli Talmor & James Wallace, 2006. "An Examination of Multiple Governance Forces within Bank Holding Companies," Journal of Financial Services Research, Springer;Western Finance Association, vol. 29(2), pages 105-123, April.
    50. Cornett, Marcia Millon & McNutt, Jamie John & Tehranian, Hassan, 2009. "Corporate governance and earnings management at large U.S. bank holding companies," Journal of Corporate Finance, Elsevier, vol. 15(4), pages 412-430, September.
    51. Levine,Ross Eric, 2004. "The Corporate Governance of Banks - a concise discussion of concepts and evidence," Policy Research Working Paper Series 3404, The World Bank.
    52. Chandra S. Mishra & James F. Nielsen, 2000. "Board Independence and Compensation Policies in Large Bank Holding Companies," Financial Management, Financial Management Association, vol. 29(3), Fall.
    53. Philippe Artzner & Freddy Delbaen & Jean‐Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. José María Díez-Esteban & Jorge Bento Farinha & Conrado Diego García-Gómez & Cesario Mateus, 2022. "Does board composition and ownership structure affect banks’ systemic risk? European evidence," Journal of Banking Regulation, Palgrave Macmillan, vol. 23(2), pages 155-172, June.
    2. Mavrakana, Christina & Psillaki, Maria, 2019. "Do board structure and compensation matter for bank stability and bank performance? Evidence from European banks," MPRA Paper 95776, University Library of Munich, Germany.
    3. Renata Karkowska & Jan Acedański, 2020. "The effect of corporate board attributes on bank stability," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 19(2), pages 99-137, May.
    4. Zhou, Yifan & Kara, Alper & Molyneux, Philip, 2019. "Chair-CEO generation gap and bank risk-taking," The British Accounting Review, Elsevier, vol. 51(4), pages 352-372.
    5. Maria Teresa Medeiros Garcia & Ana Jin Ye, 2023. "Risk-taking by banks: evidence from European Union countries," China Finance Review International, Emerald Group Publishing Limited, vol. 13(4), pages 537-567, August.
    6. Catarina Fernandes & Jorge Farinha & Francisco Vitorino Martins & Cesario Mateus, 2018. "Bank governance and performance: a survey of the literature," Journal of Banking Regulation, Palgrave Macmillan, vol. 19(3), pages 236-256, July.
    7. Emilia Peni & Sami Vähämaa, 2012. "Did Good Corporate Governance Improve Bank Performance during the Financial Crisis?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 41(1), pages 19-35, April.
    8. Catarina Fernandes & Jorge Farinha & Francisco Vitorino Martins & Cesario Mateus, 2021. "The impact of board characteristics and CEO power on banks’ risk-taking: stable versus crisis periods," Journal of Banking Regulation, Palgrave Macmillan, vol. 22(4), pages 319-341, December.
    9. Zagorchev, Andrey & Gao, Lei, 2015. "Corporate governance and performance of financial institutions," Journal of Economics and Business, Elsevier, vol. 82(C), pages 17-41.
    10. Iqbal, Jamshed & Strobl, Sascha & Vähämaa, Sami, 2015. "Corporate governance and the systemic risk of financial institutions," Journal of Economics and Business, Elsevier, vol. 82(C), pages 42-61.
    11. Shkendije Himaj, 2014. "Corporate Governance in Banks and its Impact on Risk and Performance: Review of Literature on the Selected Governance Mechanisms," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 3(3), pages 53-85.
    12. Oumeima Kacem & Sana El Harbi, 2022. "Do risk governance and effective board affect bank performance? Evidence from large banks worldwide," Risk Management, Palgrave Macmillan, vol. 24(4), pages 461-483, December.
    13. Lee, Chien-Chiang & Wang, Yurong & Zhang, Xiaoming, 2023. "Corporate governance and systemic risk: Evidence from Chinese-listed banks," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 180-202.
    14. Battaglia, Francesca & Gallo, Angela, 2015. "Risk governance and Asian bank performance: An empirical investigation over the financial crisis," Emerging Markets Review, Elsevier, vol. 25(C), pages 53-68.
    15. Vallascas, Francesco & Mollah, Sabur & Keasey, Kevin, 2017. "Does the impact of board independence on large bank risks change after the global financial crisis?," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 149-166.
    16. Dong, Yizhe & Girardone, Claudia & Kuo, Jing-Ming, 2017. "Governance, efficiency and risk taking in Chinese banking," The British Accounting Review, Elsevier, vol. 49(2), pages 211-229.
    17. Walter Gontarek & Yacine Belghitar, 2021. "CEO chairman controversy: evidence from the post financial crisis period," Review of Quantitative Finance and Accounting, Springer, vol. 56(2), pages 675-713, February.
    18. Ameni Tarchouna & Bilel Jarraya & Abdelfettah Bouri, 2022. "Do board characteristics and ownership structure matter for bank non-performing loans? Empirical evidence from US commercial banks," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(2), pages 479-518, June.
    19. mamatzakis, em, 2014. "The effect of corporate governance on the performance of US investment banks," MPRA Paper 60198, University Library of Munich, Germany.
    20. Thierno Barry & Laetitia Lepetit & Frank Strobel & Thu Tran, 2018. "Better than independent: the role of minority directors on bank boards," Working Papers hal-01937927, HAL.

    More about this item

    Keywords

    Board composition; Bank ownership; Systemic risk; Financial crisis;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:intfin:v:46:y:2017:i:c:p:128-146. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/intfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.