Corporate Governance in the 2007-2008 Financial Crisis: Evidence from Financial Institutions Worldwide
David H. Erkens
University of Southern California - Leventhal School of Accounting
Hong Kong University of Science & Technology (HKUST); University of Southern California - Leventhal School of Accounting; Hong Kong University of Science & Technology (HKUST) - Department of Accounting
Pedro P. Matos
University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)
January 15, 2012
Journal of Corporate Finance, Vol. 18, 2012
This paper investigates the influence of corporate governance on financial firms’ performance during the 2007-2008 financial crisis. Using a unique dataset of 296 financial firms from 30 countries that were at the center of the crisis, we find that firms with more independent boards and higher institutional ownership experienced worse stock returns during the crisis period. Further exploration suggests that this is because (1) firms with higher institutional ownership took more risk prior to the crisis, which resulted in larger shareholder losses during the crisis period, and (2) firms with more independent boards raised more equity capital during the crisis, which led to a wealth transfer from existing shareholders to debtholders. Overall, our findings add to the literature by examining the corporate governance determinants of financial firms’ performance during the 2007-2008 crisis.
Number of Pages in PDF File: 56
Keywords: corporate governance, credit crisis, global financial institutions
JEL Classification: G2, G3, N2
Date posted: October 29, 2010 ; Last revised: February 13, 2012
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