Risk Management, Corporate Governance, and Bank Performance in the Financial Crisis
45 Pages Posted: 13 Oct 2011
Date Written: October 11, 2011
Abstract
The recent financial crisis has raised several questions with respect to the corporate governance of financial institutions. This paper investigates whether risk management-related corporate governance mechanisms, such as for example the presence of a chief risk officer (CRO) in a bank’s executive board and whether the CRO reports to the CEO or directly to the board of directors, are associated with a better bank performance during the financial crisis of 2007/2008. We measure bank performance by buy-and-hold returns and ROE and we control for standard corporate governance variables such as CEO ownership, board size, and board independence. Most importantly, our results indicate that banks, in which the CRO directly reports to the board of directors and not to the CEO (or other corporate entities), exhibit significantly higher (i.e., less negative) stock returns and ROE during the crisis. In contrast, standard corporate governance variables are mostly insignificantly or even negatively related to the banks’ performance during the crisis.
Keywords: Chief risk officer, Corporate governance, Risk governance, Bank performance, Financial Crisis
JEL Classification: G01, G21, G32, G34
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Bank Governance, Regulation, and Risk Taking
By Luc Laeven and Ross Levine
-
Bank Governance, Regulation, and Risk Taking
By Luc Laeven and Ross Levine
-
Bank CEO Incentives and the Credit Crisis
By Rüdiger Fahlenbrach and René M. Stulz
-
Bank CEO Incentives and the Credit Crisis
By Rüdiger Fahlenbrach and René M. Stulz
-
By Andrea Beltratti and René M. Stulz
-
By Andrea Beltratti and René M. Stulz
-
The Credit Crisis Around the Globe: Why Did Some Banks Perform Better?
By Andrea Beltratti and René M. Stulz
-
Corporate Governance Lessons from the Financial Crisis
By Hector J. Lehuede, Grant Kirkpatrick, ...
-
The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000-2008
By Lucian A. Bebchuk, Alma Cohen, ...
-
The 2007 Meltdown in Structured Securitization: Searching for Lessons not Scapegoats
By Gerard Caprio, Asli Demirgüç-kunt, ...