Crisis, Governance and Performance: Evidence from the Banking Sector
Antonio De Simone
University of Naples Federico II - Faculty of Economics
June 10, 2010
ADEIMF Conference: Global Financial Crisis and Management of Financial Intermediaries: Old and New Paradigms, Udine, June 11-12, 2010
During the last few decades, Italian banking system has been affected by a reform process experiencing deep changes in the ownership structures jointly with an increase in the size of the listed banks (Szego et al., 2008). Both these aspects led to the necessity to adapt the corporate governance patterns to the needs suggested by such a new scenario. Nevertheless, all over the world corporate scandals and the financial crisis have highlighted some critical aspects of the corporate governance provisions, so that the necessity to review those patterns arises (Adams et al., 2008), especially related to the adoption of the dual system that, as known, possibly increases the risks due to the possible overlapping of functions (Brogi 2008).
The aim of the paper is to investigate whether and to what extent there is a connection between the particular corporate governance pattern used by listed banks and their performance, especially during the financial crisis. We focus in particular on the Italian financial intermediaries, also if comparisons with banks from other European countries are taken into account.
The approach followed is based on a quantitative analysis of the performance of a sample of listed banks both, before and during the years of the crisis, and is similar to those used by Gompers (2003), and by Brown et al. (2006). The main governance patterns and provisions used by such financial institutions are highlighted and compared to specific measures of performance. It is remarkable that this approach is very common, especially in the literature dealing with governance issues of non financial corporate. However, despite the approach followed by Gompers, this analysis considers that financial firms require a governance pattern that is in general different from those used by non financial firms (Adams et al., 2003). This is the case probably because of the different and more complex agency problem, that the financial firms have to face in respect to all other firms (Ciancanelli et al., 2000). We expect that the connections between corporate governance and performance is, during the period considered, relevant, and that some critical aspects of the corporate governance patterns can be highlighted.
Number of Pages in PDF File: 32
Keywords: Two tier board, One tier board, bank governance, bank performance, F.F. Three factor model
JEL Classification: C20, D21, D82, G21, G30
Date posted: February 4, 2011 ; Last revised: March 1, 2011