Board Accountability and Risk Taking in Banking – Evidence from a Quasi-Experiment

41 Pages Posted: 1 Feb 2012 Last revised: 12 Apr 2012

Tobias Körner

German Council of Economic Experts

Date Written: January 1, 2012

Abstract

In this paper, a law reform is evaluated that aimed at improving the corporate governance of German savings banks by tightening accountability and legal liability of outside directors. The causal effect of this reform on bank risk is identified by difference-in-differences and triple differences strategies. The estimation results show that savings banks subject to the reform increased capital and liquidity ratios. Hence, they have become less vulnerable to unexpected losses and liquidity shocks. This indicates that the low occurrence of outside director litigation reflects incentive effects of current liability regimes.

Keywords: Corporate governance, outside directors, legal liability, bank risk

JEL Classification: G21, G38, K20

Suggested Citation

Körner, Tobias, Board Accountability and Risk Taking in Banking – Evidence from a Quasi-Experiment (January 1, 2012). Ruhr Economic Paper No. 313. Available at SSRN: https://ssrn.com/abstract=1996520 or http://dx.doi.org/10.2139/ssrn.1996520

Tobias Körner (Contact Author)

German Council of Economic Experts ( email )

Federal Statistical Office
Gustav-Stresemann-Ring 11
Wiesbaden, Hessen 65180
Germany
+49(0)611 75 28 86 (Phone)

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