Did Good Corporate Governance Improve Bank Performance During the Financial Crisis?

Abstract:     
This paper focuses on the effects of corporate governance on bank performance during the financial crisis of 2008. Using data on large publicly-traded U.S. banks, we examine whether banks with stronger corporate governance mechanisms were associated with higher profitability and better stock market performance amidst the crisis. Our empirical findings on the effects of corporate governance on bank performance are mixed. Although the results suggest that banks with stronger corporate governance mechanisms were associated with higher profitability in 2008, our findings also indicate that strong governance may have had negative effects on stock market valuations of banks amidst the crisis. Nevertheless, we document that banks with strong corporate governance practices had substantially higher stock returns in the aftermath of the market meltdown, indicating that good governance may have mitigated the adverse influence of the crisis on bank credibility.

Number of Pages in PDF File: 31

Keywords: Corporate Governance, Bank Performance, Financial Crisis

JEL Classification: G01, G21, G30

working papers series