Investment Bank Governance
62 Pages Posted: 24 Aug 2005 Last revised: 19 Feb 2009
Date Written: February 7, 2007
Employing a new method of industry tests we examine investment bank governance. Most of the findings reject the view that banks are governed suboptimally over a sample period from 1990 through 2003. CEO pay is large and significantly sensitive to stock price performance, and stock price performance often outperforms the market. Results are consistent with bank directors being reputable, independent, and in control of their committees. Bank management is disciplined by pressure from a number of competitive product markets and from a vigorous market for bank control. No evidence exists that unusual governance qualities that could be unique to investment banking are indications of poor governance performance. The evidence agrees with the view that investment banks choose optimal governance.
Keywords: Boards of directors, board size, board composition, bond offerings, CEOs, commercial banks, comparative corporate governance, corporate control, corporate governance, directorships, endogeneity, executive compensation, Glass-Steagall, initial public offerings, investment bankers, investment banking
JEL Classification: G15, G18, G24, G32, G34, G38, J33
Suggested Citation: Suggested Citation