Abstract
This paper focuses on the effects of corporate governance on bank performance during the financial crisis of 2008. Using data on large publicly traded U.S. banks, we examine whether banks with stronger corporate governance mechanisms were associated with higher profitability and better stock market performance amidst the crisis. Our empirical findings on the effects of corporate governance on bank performance are mixed. Although the results suggest that banks with stronger corporate governance mechanisms were associated with higher profitability in 2008, our findings also indicate that strong governance may have had negative effects on stock market valuations of banks amidst the crisis. Nevertheless, we document that banks with strong corporate governance practices had substantially higher stock returns in the aftermath of the market meltdown, indicating that good governance may have mitigated the adverse influence of the crisis on bank credibility.
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We wish to thank an anonymous referee, Stanley D. Smith, James E. McNulty, and participants at the 2010 Eastern Finance Association Meeting for insightful comments and discussions. The authors gratefully acknowledge the financial support of the Foundation for Economic Education and the NASDAQ OMX Nordic Foundation. Emilia Peni further acknowledges the support of the Evald and Hilda Nissi Foundation, the Fulbright Center, and the South Ostrobothnia Fund of the Finnish Cultural Foundation, and Sami Vähämaa is grateful for the support of the Finnish Foundation for Advancement of Securities Markets, the Emil Aaltonen Foundation, and the Paulo Foundation.
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Peni, E., Vähämaa, S. Did Good Corporate Governance Improve Bank Performance during the Financial Crisis?. J Financ Serv Res 41, 19–35 (2012). https://doi.org/10.1007/s10693-011-0108-9
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DOI: https://doi.org/10.1007/s10693-011-0108-9