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Subprime Crisis and Board (In-)Competence: Private vs. Public Banks in Germany

  • Harald Hau
  • Marcel Thum

We examine evidence for a systematic underperformance of Germany’s state-owned banks in the current financial crisis and study if the bank losses can be traced to the quality of bank governance. For this purpose, we examine the biographical background of 593 supervisory board members in the 29 largest banks and find a pronounced difference in the finance and management experience of board representatives across private and state-owned banks. Measures of “boardroom competence” are then related directly to the magnitude of bank losses in the recent financial crisis. Our data confirms that supervisory board (in-)competence in finance is related to losses in the financial crisis. Improved bank governance is therefore a suitable policy objective to reduce bank fragility.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-05/cesifo1_wp2640.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2640.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2640
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  1. Mehran, Hamid, 1995. "Executive compensation structure, ownership, and firm performance," Journal of Financial Economics, Elsevier, vol. 38(2), pages 163-184, June.
  2. Laeven, Luc & Levine, Ross, 2009. "Bank governance, regulation and risk taking," Journal of Financial Economics, Elsevier, vol. 93(2), pages 259-275, August.
  3. Hamid Mehran & Joshua Rosenberg, 2007. "The effect of employee stock options on bank investment choice, borrowing, and capital," Staff Reports 305, Federal Reserve Bank of New York.
  4. International Monetary Fund, 2004. "Germany's Three-Pillar Banking System; Cross-Country Perspectives in Europe," IMF Occasional Papers 233, International Monetary Fund.
  5. Xavier Gabaix & Augustin Landier, 2008. "Why Has CEO Pay Increased So Much?," The Quarterly Journal of Economics, MIT Press, vol. 123(1), pages 49-100, 02.
  6. William O. Brown, Jr. & Michael T. Maloney, . "Exit, Voice, and the Role of Corporate Directors: Evidence from Acquisition Performance," Claremont Colleges Working Papers 1999-27, Claremont Colleges.
  7. Jean-Charles Rochet, 2008. "Introduction to Why Are There So Many Banking Crises? The Politics and Policy of Bank Regulation
    [Why Are There So Many Banking Crises? The Politics and Policy of Bank Regulation]
    ," Introductory Chapters, Princeton University Press.
  8. 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.
  9. Sinn, Hans-Werner, . "The German state banks: Global players in the international financial markets," Monographs in Economics, University of Munich, Department of Economics, number 19864.
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