How does Corporate Governance Affect Bank Capitalization Strategies?

D. Anginer, A. Demirgüc-Kunt, H.P. Huizinga, K. Ma

Research output: Working paperDiscussion paperOther research output

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Abstract

Abstract: This paper examines how corporate governance and executive compensation affect bank capitalization strategies for an international sample of banks over the 2003-2011 period. ‘Good’ corporate governance, which favors shareholder interests, is found to give rise to lower bank capitalization. Boards of intermediate size, separation of the CEO 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 is 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’ tendency to continue payouts to shareholders after experiencing negative income shocks are shown to reflect executive risk-taking incentives.
Original languageEnglish
Place of PublicationTilburg
PublisherEconomics
Number of pages48
Volume2013-054
Publication statusPublished - 2013

Publication series

NameCentER Discussion Paper
Volume2013-054

Fingerprint

Capitalization
Corporate governance
Wealth
Shareholders
Stock options
Chief executive officer
Antitakeover provisions
Income shocks
Executive compensation
Chairmen
Bank risk
Incentives
Risk taking
Executive options

Keywords

  • Bank capital
  • Dividend payouts
  • Corporate governance
  • Executive compensation

Cite this

Anginer, D., Demirgüc-Kunt, A., Huizinga, H. P., & Ma, K. (2013). How does Corporate Governance Affect Bank Capitalization Strategies? (CentER Discussion Paper; Vol. 2013-054). Tilburg: Economics.
Anginer, D. ; Demirgüc-Kunt, A. ; Huizinga, H.P. ; Ma, K. / How does Corporate Governance Affect Bank Capitalization Strategies?. Tilburg : Economics, 2013. (CentER Discussion Paper).
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Anginer, D, Demirgüc-Kunt, A, Huizinga, HP & Ma, K 2013 'How does Corporate Governance Affect Bank Capitalization Strategies?' CentER Discussion Paper, vol. 2013-054, Economics, Tilburg.

How does Corporate Governance Affect Bank Capitalization Strategies? / Anginer, D.; Demirgüc-Kunt, A.; Huizinga, H.P.; Ma, K.

Tilburg : Economics, 2013. (CentER Discussion Paper; Vol. 2013-054).

Research output: Working paperDiscussion paperOther research output

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AB - Abstract: This paper examines how corporate governance and executive compensation affect bank capitalization strategies for an international sample of banks over the 2003-2011 period. ‘Good’ corporate governance, which favors shareholder interests, is found to give rise to lower bank capitalization. Boards of intermediate size, separation of the CEO 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 is 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’ tendency to continue payouts to shareholders after experiencing negative income shocks are shown to reflect executive risk-taking incentives.

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Anginer D, Demirgüc-Kunt A, Huizinga HP, Ma K. How does Corporate Governance Affect Bank Capitalization Strategies? Tilburg: Economics. 2013. (CentER Discussion Paper).