How Does Corporate Governance Affect Bank Capitalization Strategies?

48 Pages Posted: 7 Oct 2013 Last revised: 26 Dec 2019

See all articles by Deniz Anginer

Deniz Anginer

Simon Fraser University (SFU)

Asli Demirgüç-Kunt

World Bank

Harry Huizinga

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR)

Kebin Ma

University of Warwick - Finance Group

Multiple version iconThere are 3 versions of this paper

Date Written: October 7, 2013

Abstract

This paper examines how corporate governance and executive compensation affect bank capitalization strategies for an international sample of banks over the 2003-2011 period. ‘Good’ corporate governance, which favors shareholder interests, is found to give rise to lower bank capitalization. Boards of intermediate size, separation of the CEO and chairman roles, and an absence of anti-takeover provisions, in particular, lead to low bank capitalization. However, executive options and stock wealth invested in the bank is associated with better capitalization except just before the crisis in 2006. In that year stock options wealth was associated with lower capitalization which suggests that potential gains from taking on more bank risk outweighed the prospect of additional loss. Banks’ tendency to continue payouts to shareholders after experiencing negative income shocks are shown to reflect executive risk-taking incentives.

Keywords: Bank capital, Dividend payouts, Corporate governance, Executive compensation

JEL Classification: G21, M21

Suggested Citation

Anginer, Deniz and Demirgüç-Kunt, Asli and Huizinga, Harry and Ma, Kebin, How Does Corporate Governance Affect Bank Capitalization Strategies? (October 7, 2013). European Banking Center Discussion Paper No. 2013-011, CentER Discussion Paper Series Nol 2013-054, WBS Finance Group Research Paper No. 208, Available at SSRN: https://ssrn.com/abstract=2336949 or http://dx.doi.org/10.2139/ssrn.2336949

Deniz Anginer (Contact Author)

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

Asli Demirgüç-Kunt

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Harry Huizinga

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2623 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Kebin Ma

University of Warwick - Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

HOME PAGE: http://www.kebinma.com

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