Advanced Search
MyIDEAS: Login to save this paper or follow this series

How does corporate governance affect bank capitalization strategies ?

Contents:

Author Info

  • Anginer, Deniz
  • Demirguc-Kunt, Asli
  • Huizinga, Harry
  • Ma, Kebin

Abstract

This paper examines how corporate governance and executive compensation affected bank capitalization strategies for an international sample of banks in 2003-2011."Good"corporate governance, which favors shareholder interests, is found to give rise to lower bank capitalization. Boards of intermediate size, separation of the chief executive officer and chairman roles, and an absence of anti-takeover provisions, in particular, lead to low bank capitalization. However, executive options and stock wealth invested in the bank are associated with better capitalization except just before the crisis in 2006. In that year, stock options wealth was associated with lower capitalization, which suggests that potential gains from taking on more bank risk outweighed the prospect of additional loss. Banks'tendencies to continue payouts to shareholders after experiencing negative income shocks are shown to reflect executive risk-taking incentives.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2013/10/03/000158349_20131003130836/Rendered/PDF/WPS6636.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6636.

as in new window
Length:
Date of creation: 01 Oct 2013
Date of revision:
Handle: RePEc:wbk:wbrwps:6636

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

Related research

Keywords: Banks&Banking Reform; Debt Markets; Economic Theory&Research; Investment and Investment Climate; Corporate Law;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Houston, Joel F. & James, Christopher, 1995. "CEO compensation and bank risk Is compensation in banking structured to promote risk taking?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 36(2), pages 405-431, November.
  2. Fahlenbrach, Rüdiger & Stulz, René M., 2011. "Bank CEO incentives and the credit crisis," Journal of Financial Economics, Elsevier, Elsevier, vol. 99(1), pages 11-26, January.
  3. Hamid Mehran & Alan Morrison & Joel Shapiro, 2011. "Corporate governance and banks: what have we learned from the financial crisis?," Staff Reports, Federal Reserve Bank of New York 502, Federal Reserve Bank of New York.
  4. Berger, Allen N. & Bouwman, Christa H.S., 2013. "How does capital affect bank performance during financial crises?," Journal of Financial Economics, Elsevier, Elsevier, vol. 109(1), pages 146-176.
  5. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert Vishny, 1998. "Agency Problems and Dividend Policies Around the World," NBER Working Papers 6594, National Bureau of Economic Research, Inc.
  6. John, Kose & Saunders, Anthony & Senbet, Lemma W, 2000. "A Theory of Bank Regulation and Management Compensation," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 13(1), pages 95-125.
  7. Fahlenbach, Rudiger & Stulz, Rene M., 2009. "Bank CEO Incentives and the Credit Crisis," Working Paper Series, Ohio State University, Charles A. Dice Center for Research in Financial Economics 2009-13, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  8. Jeffrey R. Brown & Nellie Liang & Scott Weisbenner, 2006. "Executive financial incentives and payout policy: firm responses to the 2003 dividend tax cut," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2006-14, Board of Governors of the Federal Reserve System (U.S.).
  9. Chava, Sudheer & Purnanandam, Amiyatosh, 2010. "CEOs versus CFOs: Incentives and corporate policies," Journal of Financial Economics, Elsevier, Elsevier, vol. 97(2), pages 263-278, August.
  10. Pathan, Shams, 2009. "Strong boards, CEO power and bank risk-taking," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(7), pages 1340-1350, July.
  11. Doidge, Craig & Andrew Karolyi, G. & Stulz, Rene M., 2007. "Why do countries matter so much for corporate governance?," Journal of Financial Economics, Elsevier, Elsevier, vol. 86(1), pages 1-39, October.
  12. Robert DeYoung & Emma Y. Peng & Meng Yan, 2010. "Executive compensation and business policy choices at U.S. commercial banks," Research Working Paper, Federal Reserve Bank of Kansas City RWP 10-02, Federal Reserve Bank of Kansas City.
  13. Patrick Bolton & Hamid Mehran & Joel Shapiro, 2010. "Executive compensation and risk taking," Staff Reports, Federal Reserve Bank of New York 456, Federal Reserve Bank of New York.
  14. Jagannathan, Murali & Stephens, Clifford P. & Weisbach, Michael S., 2000. "Financial flexibility and the choice between dividends and stock repurchases," Journal of Financial Economics, Elsevier, Elsevier, vol. 57(3), pages 355-384, September.
  15. Huang, Rongbing & Ritter, Jay R., 2009. "Testing Theories of Capital Structure and Estimating the Speed of Adjustment," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 44(02), pages 237-271, April.
  16. Fenn, George W. & Liang, Nellie, 2001. "Corporate payout policy and managerial stock incentives," Journal of Financial Economics, Elsevier, Elsevier, vol. 60(1), pages 45-72, April.
  17. Denis, David J. & Osobov, Igor, 2008. "Why do firms pay dividends? International evidence on the determinants of dividend policy," Journal of Financial Economics, Elsevier, Elsevier, vol. 89(1), pages 62-82, July.
  18. Alex Edmans & Qi Liu, 2011. "Inside Debt," Review of Finance, European Finance Association, European Finance Association, vol. 15(1), pages 75-102.
  19. Andrew Ellul & Vijay Yerramilli, 2010. "Stronger Risk Controls, Lower Risk: Evidence from U.S. Bank Holding Companies," FMG Discussion Papers, Financial Markets Group dp646, Financial Markets Group.
  20. Öztekin, Özde & Flannery, Mark J., 2012. "Institutional determinants of capital structure adjustment speeds," Journal of Financial Economics, Elsevier, Elsevier, vol. 103(1), pages 88-112.
  21. Demirguc-Kunt, Asli & Detragiache, Enrica & Merrouche, Ouarda, 2010. "Bank capital : lessons from the financial crisis," Policy Research Working Paper Series 5473, The World Bank.
  22. Beltratti, Andrea & Stulz, René M., 2012. "The credit crisis around the globe: Why did some banks perform better?," Journal of Financial Economics, Elsevier, Elsevier, vol. 105(1), pages 1-17.
  23. Gropp, Reint & Heider, Florian, 2009. "The determinants of bank capital structure," Working Paper Series, European Central Bank 1096, European Central Bank.
  24. Low, Angie, 2009. "Managerial risk-taking behavior and equity-based compensation," Journal of Financial Economics, Elsevier, Elsevier, vol. 92(3), pages 470-490, June.
  25. Marco Becht & Patrick Bolton & Ailsa Röell, 2011. "Why bank governance is different," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 27(3), pages 437-463.
  26. Renée B. Adams & Daniel Ferreira, 2007. "A Theory of Friendly Boards," Journal of Finance, American Finance Association, American Finance Association, vol. 62(1), pages 217-250, 02.
  27. Soku Byoun, 2008. "How and When Do Firms Adjust Their Capital Structures toward Targets?," Journal of Finance, American Finance Association, American Finance Association, vol. 63(6), pages 3069-3096, December.
  28. Marco Becht & Patrick Bolton & Ailsa Röell, 2011. "Why Bank Governance is Different," ULB Institutional Repository 2013/137433, ULB -- Universite Libre de Bruxelles.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Charles W. Calomiris & Mark Carlson, 2014. "Corporate Governance and Risk Management at Unprotected Banks: National Banks in the 1890s," NBER Working Papers 19806, National Bureau of Economic Research, Inc.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:6636. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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