The Roles of Corporate Governance in Bank Failures during the Recent Financial Crisis

2016/05/17 by Allen N. Berger, ALLEN N. BERGER, BJÖRN IMBIEROWICZ +3 · 323 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Accounting #Bank failure #Banking stability, regulation, efficiency #Business #Corporate governance #Economics #Finance #Financial crisis #Financial system #Global Financial Crisis and Policies #Islamic Finance and Banking Studies #Macroeconomics

paper · open access · doi:10.1111/jmcb.12316

published in Journal of money credit and banking 48(4), 729-770 (Wiley)

openalex publication_date 2016/05/17 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/01

Abstract

We analyze the roles of bank ownership, management, and compensation structures in bank failures during the recent financial crisis. Our results suggest that failures are strongly influenced by ownership structure: high shareholdings of lower‐level management and non‐chief executive officer (non‐CEO) higher‐level management increase failure risk significantly. In contrast, shareholdings of banks’ CEOs do not have a direct impact on bank failure. These findings suggest that high stakes in the bank induce non‐CEO managers to take high risks due to moral hazard incentives, which may result in bank failure. We identify tail risk in noninterest income as a primary risk‐taking channel of lower‐level managers.

Citations

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