How Does Corporate Governance Affect Bank Capitalization Strategies?

This paper examines how corporate governance and executive compensation affected bank capitalization strategies for an international sample of banks in 2003-2011. "Good" corporate governance, which favors shareholder interests, is found to give rise to lower bank capitalization. Boards of intermediate size, separation of the chief executive officer and chairman roles, and an absence of anti-takeover provisions, in particular, lead to low bank capitalization. However, executive options and stock wealth invested in the bank are associated with better capitalization except just before the crisis in 2006. In that year, stock options wealth was associated with lower capitalization, which suggests that potential gains from taking on more bank risk outweighed the prospect of additional loss. Banks' tendencies to continue payouts to shareholders after experiencing negative income shocks are shown to reflect executive risk-taking incentives.

Bibliographic Details

Main Authors:	Anginer, Deniz, Demirguc-Kunt, Asli, Huizinga, Harry, Ma, Kebin
Language:	English en_US
Published:	World Bank, Washington, DC 2013-10
Subjects:	ACCOUNTING, AFFILIATED ORGANIZATIONS, AGENCY COSTS, AGENCY PROBLEMS, ANTI-TAKEOVER PROVISION, ANTI-TAKEOVER PROVISIONS, ASSETS RATIO, BAILOUTS, BANK ASSETS, BANK CAPITAL, BANK CAPITALIZATION, BANK FAILURE, BANK FAILURES, BANK HOLDING, BANK HOLDING COMPANIES, BANK MARKET, BANK REGULATION, BANK RISK, BANK VALUATION, BANKING CRISIS, BANKING INDUSTRY, BANKS, BOARD MEMBERS, BOARD MEMBERSHIP, BOOK VALUE, BUSINESS CYCLE, CAPITAL ADJUSTMENT, CAPITAL MARKET, CAPITAL STRUCTURE, CAPITAL STRUCTURES, CASH FLOWS, CDS, CEO, CEOS, CHECKS, CHIEF EXECUTIVE, COMMERCIAL BANKS, COMMON EQUITY, COMMON SHARE, COMMON SHAREHOLDER, COMMON SHAREHOLDERS, COMMON SHARES, COMPANIES ACT, COMPANY, COMPENSATION PACKAGE, COMPENSATION PACKAGES, COMPENSATION POLICIES, CORPORATE GOVERNANCE, CORPORATE GOVERNANCE AFFECT, CORPORATE GOVERNANCE AFFECTS, DEBT, DELAWARE, DELTA, DEPOSIT, DEPOSIT INSURANCE, DEVELOPMENT POLICY, DIVIDEND PAYMENT, DIVIDEND PAYMENTS, DIVIDEND POLICIES, DIVIDEND POLICY, DIVIDENDS, DUMMY VARIABLE, DUMMY VARIABLES, EQUITY CAPITAL, EQUITY CAPITAL MARKET, EX ANTE, EXPECTED VALUE, FINANCIAL CRISIS, FINANCIAL DISTRESS, FINANCIAL INSTITUTIONS, FINANCIAL STUDIES, FREE RIDER, FREE RIDER PROBLEMS, GOVERNANCE ISSUES, GOVERNMENT BONDS, GOVERNMENT GUARANTEES, HUMAN CAPITAL, INCENTIVES OF SHAREHOLDERS, INCOME, INCORPORATED, INDEPENDENT BOARDS, INDEPENDENT DIRECTOR, INDEPENDENT DIRECTORS, INSTITUTIONAL SHAREHOLDER, INSURANCE PREMIUM, INTERESTS OF SHAREHOLDERS, INTERNATIONAL BANK, INTERNATIONAL FINANCIAL CRISIS, ISSUANCE, LIMITED, LOAN, LOWER LEVERAGE, MANAGERS, MARKET DATA, MARKET VALUE, MINORITY INTERESTS, MINORITY SHAREHOLDER, MINORITY SHAREHOLDER RIGHTS, MONETARY FUND, MORTGAGE, MORTGAGE-BACKED SECURITIES, NEGATIVE INCOME SHOCK, NEGATIVE INCOME SHOCKS, NEGATIVE SHOCK, NEGATIVE SHOCKS, PAYOUT, PENSION, PENSION RIGHTS, PORTFOLIO, POSITIVE COEFFICIENT, POSITIVE COEFFICIENTS, PRICE INCREASES, PRICE MOVEMENTS, PRICE RISK, PRICE VOLATILITY, PRINCIPLE OF SHAREHOLDER PRIMACY, PRIVATE INVESTORS, PROXY, RATE OF RETURN, RESERVES, RETURN, RETURN ON ASSETS, RETURNS, RISK CONTROLS, RISK TAKING, RISK WEIGHTED ASSETS, SAFETY NET, SHARE OWNERSHIP, SHAREHOLDER, SHAREHOLDER INTERESTS, SHAREHOLDER VALUE, SHAREHOLDERS, STOCK INVESTORS, STOCK ISSUANCE, STOCK MARKET, STOCK OPTION, STOCK OPTIONS, STOCK OWNERSHIP, STOCK PRICE, SUBORDINATED DEBT, TAKEOVER, TANGIBLE ASSETS, TAX, TIER 1 CAPITAL, TIER 2 CAPITAL, VALUATION, VALUATIONS, WEALTH,
Online Access:	http://documents.worldbank.org/curated/en/2013/10/18343642/corporate-governance-affect-bank-capitalization-strategies https://hdl.handle.net/10986/16853
Tags:	Add Tag No Tags, Be the first to tag this record!