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Did Good Cajas Extend Bad Loans? Governance, Human Capital and Loan Portfolios

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  • Vicente, Cuñat
  • Luis, Garicano

Abstract

Did financial institutions with better governance arrangements weather the recent financial crisis better? And how about those with more qualified chairmen? We answer these questions in the context of the Spanish Savings and Loans (Cajas). We find that neither formal governance institutions (e.g. the way the board is appointed) nor real governance (e.g. the actual composition of the board and the role played by political parties in it) are highly correlated with the composition of the loan book at the peak of the financial crisis (the size of the portfolios of real estate and individual loans) or with the performance of these loans (the amount of non performing loans in the crisis or the decrease in ratings). On the other hand, we find a clear and significant impact of the human capital of the Caja chairmen on the measures of loan book composition and performance. In particular, we find that (1) Cajas whose chairman was previously a political appointee have had significantly worse loan performance; (2) Cajas whose chairman did not have postgraduate education have significantly worse performance; and (3) Cajas whose chairman had no banking experience had significantly worse performance.We examine the implications of these findings for our understanding of the origins of the crisis and for the future regulation of the Cajas.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 42434.

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Date of creation: Nov 2010
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Handle: RePEc:pra:mprapa:42434

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Keywords: savings banks; crisis; human capital; CEOs;

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References

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  1. Hart, Oliver D. & Moore, John, 2005. "On the Design of Hierarchies: Coordination Versus Specialization," Scholarly Articles 3448676, Harvard University Department of Economics.
  2. Garcia-Cestona, Miguel & Surroca, Jordi, 2008. "Multiple goals and ownership structure: Effects on the performance of Spanish savings banks," European Journal of Operational Research, Elsevier, Elsevier, vol. 187(2), pages 582-599, June.
  3. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(5), pages 874-904, October.
  4. Atif Mian & Amir Sufi & Francesco Trebbi, 2008. "The Political Economy of the U.S. Mortgage Default Crisis," NBER Working Papers 14468, National Bureau of Economic Research, Inc.
  5. Matvos, Gregor & Ostrovsky, Michael, 2008. "Cross-ownership, returns, and voting in mergers," Journal of Financial Economics, Elsevier, Elsevier, vol. 89(3), pages 391-403, September.
  6. Jarrad Harford & Dirk Jenter & Kai Li, 2007. "Conflicts of Interests Among Shareholders: The Case of Corporate Acquisitions," NBER Working Papers 13274, National Bureau of Economic Research, Inc.
  7. Manuel Illueca & Lars Norden & Gregory F. Udell, 2009. "Liberalization, Corporate Governance, and Savings Banks," Mo.Fi.R. Working Papers, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences 17, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  8. Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 120(4), pages 1371-1411, November.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Ã?ltima oportunidad para adelantarse a los acontecimientos en el sector financiero
    by Luis Garicano in Nada Es Gratis on 2011-03-17 01:06:17
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Cited by:
  1. Daniel Ferreira & Tom Kirchmaier & Daniel Metzger, 2011. "Boards of Banks," FMG Discussion Papers, Financial Markets Group dp664, Financial Markets Group.
  2. Ana Lozano-Vivas & Miguel Meléndez-Jiménez & Antonio Morales, 2011. "With whom to merge? A tale of the Spanish banking deregulation process," SERIEs, Spanish Economic Association, Spanish Economic Association, vol. 2(2), pages 159-184, June.
  3. Andrea ÉLTETÕ, 2011. "The economic crisis and its management in Spain," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, Centre for European Studies, Alexandru Ioan Cuza University, vol. 2, pages 41-55, June.
  4. Stefanelli, Valeria & Matteo, Cotugno, 2010. "An Empirical Analysis on Board Monitoring Role and Loan Portfolio Quality Measurement in Banks," MPRA Paper 29766, University Library of Munich, Germany.

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