Corporate Governance and the Systemic Risk of Financial Institutions

45 Pages Posted: 23 Aug 2014 Last revised: 28 Nov 2015

See all articles by Jamshed Iqbal

Jamshed Iqbal

University of Vaasa, School of Accounting and Finance

Sascha Strobl

Clarmont Graduate University

Sami Vähämaa

University of Vaasa

Date Written: June 10, 2015

Abstract

This paper studies the relationship between corporate governance and the systemic risk of financial institutions. Specifically, using a sample of large U.S. financial institutions from 2005 to 2010, we examine whether the strength of corporate governance mechanisms can explain the cross-sectional variation in systemic risk around the recent financial crisis. Our empirical findings indicate that financial institutions with stronger and more shareholder-focused corporate governance structures and boards of directors are associated with higher levels of systemic risk. Thus, our results suggest that good corporate governance may encourage rather than constrain excessive risk-taking in the financial industry.

Keywords: corporate governance; boards; systemic risk; bank risk-taking; financial crisis

JEL Classification: G01, G21, G32, G33, G34

Suggested Citation

Iqbal, Jamshed and Strobl, Sascha and Vähämaa, Sami, Corporate Governance and the Systemic Risk of Financial Institutions (June 10, 2015). Journal of Economics and Business, Vol. 82, No. 1, pp. 42-61, 2015; 27th Australasian Finance and Banking Conference 2014 Paper. Available at SSRN: https://ssrn.com/abstract=2485329 or http://dx.doi.org/10.2139/ssrn.2485329

Jamshed Iqbal (Contact Author)

University of Vaasa, School of Accounting and Finance ( email )

P.O. Box 700
FIN-65101 Vaasa, FI-65101
Finland

Sascha Strobl

Clarmont Graduate University ( email )

150 E. Tenth Street
Claremont, CA 91711
United States

Sami Vähämaa

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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