The impact of board characteristics and CEO power on banks’ risk-taking: stable versus crisis periods

Fernandes, Catarina; Farinha, Jorge; Martins, Francisco Vitorino; Mateus, Cesário

http://hdl.handle.net/10198/24541

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Authors

Fernandes, Catarina

Farinha, Jorge

Martins, Francisco Vitorino

Mateus, Cesário

Abstract(s)

We examine the impact of board structure, CEO power and other bank-specific factors on bank risk-taking for a sample of 72 publicly listed European banks in both stable and crisis periods. Using a simultaneous equations approach, our main findings indicate that the proportion of independent directors, the board size, and Chief Executive Officer (CEO) power affected bank risk-taking negatively during the recent financial crisis. On the contrary, institutional shareholder ownership and the presence of an ex-CEO as Chairman influenced bank risk-taking positively. Additionally, we separately analyse stable and crisis periods and observe that in the pre-crisis period only board independence and institutional ownership keep the same impact on risk while CEO power has no influence and the existence of an ex-CEO as Chairman reduces risk-taking by banks. We conclude that different governance characteristics have different relevance for banks’ risk-taking contingent on the economic environment being one of stability or crisis.

Keywords

Corporate governance Banks Financial crisis Risk Simultaneous equations

URI

http://hdl.handle.net/10198/24541

Citation

Fernandes, Catarina; Farinha, Jorge; Martins, Francisco Vitorino; Mateus, Cesario (2021). The impact of board characteristics and CEO power on banks’ risk-taking: Stable versus crisis periods. Journal of Banking Regulation. ISSN 1750-2071. 22, p. 319–341.