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The impact of board characteristics and CEO power on banks’ risk-taking: stable versus crisis periods

Author

Listed:
  • Catarina Fernandes

    (University of Porto)

  • Jorge Farinha

    (University of Porto)

  • Francisco Vitorino Martins

    (University of Porto)

  • Cesario Mateus

    (Aalborg Universitet)

Abstract

We examine the impact of board structure, CEO power and other bank-specific factors on bank risk-taking for a sample of 72 publicly listed European banks in both stable and crisis periods. Using a simultaneous equations approach, our main findings indicate that the proportion of independent directors, the board size, and Chief Executive Officer (CEO) power affected bank risk-taking negatively during the recent financial crisis. On the contrary, institutional shareholder ownership and the presence of an ex-CEO as Chairman influenced bank risk-taking positively. Additionally, we separately analyse stable and crisis periods and observe that in the pre-crisis period only board independence and institutional ownership keep the same impact on risk while CEO power has no influence and the existence of an ex-CEO as Chairman reduces risk-taking by banks. We conclude that different governance characteristics have different relevance for banks' risk-taking contingent on the economic environment being one of stability or crisis.

Suggested Citation

  • 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.
    • Handle: RePEc:pal:jbkreg:v:22:y:2021:i:4:d:10.1057_s41261-021-00146-4
    DOI: 10.1057/s41261-021-00146-4
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    More about this item

    Keywords

    Corporate governance; Banks; Financial crisis; Risk; Simultaneous equations;
    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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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