The influence of corporate governance on bank risk during a financial crisis (original) (raw)

2018, Economic Research-Ekonomska Istraživanja

Using agency theory, we explore the relationship between corporate governance mechanisms and bank risk. We employ panel data analysis to study the 97 largest European listed banks between 2006 and 2010, thereby covering the most recent international financial crisis. The results show that corporate governance mechanisms influence bank risk. During the financial crisis, different governance mechanisms can minimise or accentuate the agency conflict between shareholders and managers. In our model, bank size and G.D.P. per capita also exert a considerable influence. 'excessive risk'. This motivates our study of corporate governance amongst banks and, specifically, the influence on bank risk. Adams and Mehran (2003, 2005) studied the specifics of the banking sector. Matić and Papac (2014) studied the quality of governance in banks. Iannotta, Nocera, and Sironi (2007) performed an integrated analysis considering governance, specifically ownership structure, risk and performance. Previous studies in this field (e.g., Pathan, 2009; Victoravich, Grove, Xu, & Bulepp, 2011) have focused on US financial institutions, where shareholder dispersion is the paradigm and banks play a less central role in the financial system than in, for example, continental European countries. As Maurović and Hasić (2013) note, agency problems in Anglo-Saxon and continental legal systems also differ. The scarcity of studies of the effect on bank risk also justifies this study's relevance.