Abstract

http://ssrn.com/abstract=2021799
 
 

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The Roles of Corporate Governance in Bank Failures During the Recent Financial Crisis


Allen N. Berger


University of South Carolina - Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Björn Imbierowicz


Goethe University Frankfurt - Department of Finance

Christian Rauch


Goethe University Frankfurt

October 12, 2014


Abstract:     
This paper analyzes the roles of corporate governance in bank defaults during the recent financial crisis. We investigate the impacts of bank ownership and management structures on the probability of default of US commercial banks. Our results suggest that defaults are strongly influenced by a bank’s ownership structure: high shareholdings of lower-level management, such as vice presidents, increase default risk significantly. In contrast, shareholdings of outside directors and chief officers (managers with a “chief officer” position, such as the CEO, CFO, etc.) do not have a direct impact on the probability of failure. These findings suggest that high stakes in the bank induce lower-level management to take high risks due to moral hazard incentives, which may eventually result in bank default. Our results further show that the probability of default specifically increases when incentives of chief officers and lower-level management are aligned. Accounting variables, such as capital, earnings, and non-performing loans, also help predict bank default. However, other potential stability indicators, such as the management structure of the bank, appear to be less important.

Number of Pages in PDF File: 43

Keywords: Bank Default, Corporate Governance, Bank Regulation

JEL Classification: G21, G28, G32, G34

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Date posted: March 15, 2012 ; Last revised: October 13, 2014

Suggested Citation

Berger, Allen N. and Imbierowicz, Björn and Rauch, Christian, The Roles of Corporate Governance in Bank Failures During the Recent Financial Crisis (October 12, 2014). Available at SSRN: http://ssrn.com/abstract=2021799 or http://dx.doi.org/10.2139/ssrn.2021799

Contact Information

Allen N. Berger
University of South Carolina - Moore School of Business ( email )
1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)
Wharton Financial Institutions Center
Philadelphia, PA 19104-6367
United States
European Banking Center
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
Björn Imbierowicz
Goethe University Frankfurt - Department of Finance ( email )
Mertonstr. 17
Frankfurt, 60054
Germany
HOME PAGE: http://www.björn-imbierowicz.de
Christian Rauch (Contact Author)
Goethe University Frankfurt ( email )
Grüneburgplatz 1
Frankfurt am Main, 60323
Germany
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