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

31 Pages Posted: 15 Jan 2011 Last revised: 25 Apr 2012

Emilia Vähämaa

Hanken School of Economics; University of Vaasa

Sami Vähämaa

University of Vaasa

Date Written: March 31, 2011

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.

Keywords: Corporate Governance, Bank Performance, Financial Crisis

JEL Classification: G01, G21, G30

Suggested Citation

Vähämaa, Emilia and Vähämaa, Sami, Did Good Corporate Governance Improve Bank Performance During the Financial Crisis? (March 31, 2011). Journal of Financial Services Research, Vol. 41, No. 1-2, pp. 19-35, 2012. Available at SSRN: https://ssrn.com/abstract=1740547 or http://dx.doi.org/10.2139/ssrn.1740547

Emilia Vähämaa

Hanken School of Economics ( email )

PB 287
Vaasa, Vaasa 65101
Finland

University of Vaasa ( email )

P.O. Box 700
Wolffintie 34
FIN-65101 Vaasa
Finland

Sami Vähämaa (Contact Author)

University of Vaasa ( email )

P.O. Box 700
Vaasa, FI-65101
Finland
+358 29 449 8455 (Phone)

HOME PAGE: http://www.uva.fi/~sami

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