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The Credit Crisis Around the Globe: Why Did Some Banks Perform Better?

Charles A. Dice Center Working Paper No. 2010-5

Fisher College of Business Working Paper No. 2010-03-005

43 Pages Posted: 16 Mar 2010 Last revised: 14 Feb 2011

Andrea Beltratti

Bocconi University - Department of Finance

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Date Written: February 11, 2011

Abstract

Though overall bank performance from July 2007 to December 2008 was the worst since the Great Depression, there is significant variation in the cross-section of stock returns of large banks across the world during that period. We use this variation to evaluate the importance of factors that have been put forth as having contributed to the poor performance of banks during the credit crisis. The evidence is supportive of theories that emphasize the fragility of banks financed with short-term capital market funding. The better-performing banks had less leverage and lower returns immediately before the crisis. Differences in banking regulations across countries are generally uncorrelated with the performance of banks during the crisis, except that large banks from countries with more restrictions on bank activities performed better and decreased loans less. Our evidence poses a substantial challenge to those who argue that poor bank governance was a major cause of the crisis because we find that banks with more shareholder-friendly boards performed significantly worse during the crisis than other banks, were not less risky before the crisis, and reduced loans more during the crisis,

JEL Classification: G01, G15, G18, G21, G32, G34

Suggested Citation

Beltratti , Andrea and Stulz, René M., The Credit Crisis Around the Globe: Why Did Some Banks Perform Better? (February 11, 2011). Charles A. Dice Center Working Paper No. 2010-5; Fisher College of Business Working Paper No. 2010-03-005. Available at SSRN: https://ssrn.com/abstract=1572407 or http://dx.doi.org/10.2139/ssrn.1572407

Andrea Beltratti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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