Investment Bank Governance
George Washington University, School of Business
Robert S. Hansen
Tulane University - A.B. Freeman School of Business
National University of Singapore
February 7, 2007
AFA 2007 Chicago Meetings Paper
Employing a new method of industry tests we examine investment bank governance. Most of the findings reject the view that banks are governed suboptimally over a sample period from 1990 through 2003. CEO pay is large and significantly sensitive to stock price performance, and stock price performance often outperforms the market. Results are consistent with bank directors being reputable, independent, and in control of their committees. Bank management is disciplined by pressure from a number of competitive product markets and from a vigorous market for bank control. No evidence exists that unusual governance qualities that could be unique to investment banking are indications of poor governance performance. The evidence agrees with the view that investment banks choose optimal governance.
Number of Pages in PDF File: 62
Keywords: Boards of directors, board size, board composition, bond offerings, CEOs, commercial banks, comparative corporate governance, corporate control, corporate governance, directorships, endogeneity, executive compensation, Glass-Steagall, initial public offerings, investment bankers, investment banking
JEL Classification: G15, G18, G24, G32, G34, G38, J33working papers series
Date posted: August 24, 2005 ; Last revised: February 19, 2009
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