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
Date Written: September 1, 2016
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
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