Corporate Governance and Bank Failures
60 Pages Posted: 3 Nov 2012 Last revised: 19 Oct 2020
Date Written: October 6, 2020
How does corporate governance influence banks’ resilience to crises? To address this question, we develop a measure of management entrenchment based on legal provisions. Unlike the existing alternatives, our measure considers the interactions between different provisions. We use this measure to study the relationship between management entrenchment and bank failure during the 2007-09 financial crisis. We find that banks in which managers were more insulated from shareholders in 2003 were less likely to be both bailed out in 2008/09 and targeted by activist shareholders. By contrast, alternative measures of management entrenchment fail to predict both bailouts and shareholder activism.
Keywords: Corporate Governance, Bank Bailouts
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