European Banks’ Legal Provisions and Financial Crises: The Influence of Corporate Governance and Institutional Environment
Jorge Gallud Cano & Felix J.Lopez-Iturriaga & Oscar Lopez-De-Foronda Perez, 2020. "European Banks’ Legal Provisions and Financial Crises: The Influence of Corporate Governance and Institutional Environment," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty
24 Pages Posted: 16 Jun 2020 Last revised: 17 Jun 2020
Date Written: May 21, 2020
We study the legal provisions of 92 European systemic banks from 18 countries over the years 2008-2017. Since legal provisions may be viewed as a mechanism for disclosing information to capital markets, the creation of legal provisions is determined by the risk taken by the bank and the managerial incentives to disclose information. Our results show an initial negative relationship between managers’ discretionary investments and legal provisions, even when we control for risk taking. We also find that board of director independence has a moderating effect in order to guard against future lawsuits. Similarly, a better institutional framework amplifies the positive influence of the board of directors.
Keywords: legal provisions, risk, corporate governance, institutional framework, European banks
JEL Classification: G32, G38
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