Governance and Bank Characteristics in the Credit and Sovereign Debt Crises – The Impact of CEO Power

27 Pages Posted: 1 Mar 2016 Last revised: 20 Oct 2016

See all articles by Sabur Mollah

Sabur Mollah

Sheffield University Management School, University of Sheffield; Swansea Management School, Swansea University; Hull University Business School; Hull University Business School

Eva Liljeblom

Swedish School of Economics and Business Administration

Date Written: September 1, 2016

Abstract

The global financial sector recently suffered from two interrelated crises: the credit crisis and the sovereign debt crisis. A common question is whether there, for the sovereign debt crisis, has been any lessons learnt from the credit crisis. One interesting specific question is the relationship between bank performance and CEO power: do banks with powerful CEOs perform better or worse than other banks, and do we see any difference in this relationship between the two crises? We study the relationship between CEO power and bank performance, measured by bank risk, profitability, and asset quality, while controlling for bank and bank governance characteristics, as well as country and regulatory characteristics. With unique hand-collected data on 378 large global banks, we find that CEO power is positively related to bank profitability and asset quality, but also positively related to insolvency risk, during the sovereign debt crisis. Thus, strong CEOs do not appear to be detrimental to bank performance. Our results also support the idea that deposit insurance may have contributed to the credit crisis.

Keywords: global banks, boards, non-performing loans, the credit and sovereign debt crises, distance to default, idiosyncratic risk

JEL Classification: G01, G18, G21

Suggested Citation

Mollah, Sabur and Liljeblom, Eva, Governance and Bank Characteristics in the Credit and Sovereign Debt Crises – The Impact of CEO Power (September 1, 2016). Journal of Financial Stability, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2739803 or http://dx.doi.org/10.2139/ssrn.2739803

Sabur Mollah (Contact Author)

Sheffield University Management School, University of Sheffield ( email )

Conduit Road
Sheffield, Sheffield S10 1FL
United Kingdom

Swansea Management School, Swansea University ( email )

Singleton Park
Swansea, Wales SA2 8PP
United Kingdom

Hull University Business School ( email )

Cottingham Road
Hull, Great Britain HU6 7RX
United Kingdom

Hull University Business School ( email )

Cottingham Road
Hull, Hull HU6 7RX
United Kingdom

Eva Liljeblom

Swedish School of Economics and Business Administration ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland
+358-9-431 33 291 (Phone)
+358-9-431 33 393 (Fax)

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