Corporate governance and bank capitalization strategies |
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| Affiliation: | 1. Virginia Tech, Pamplin College of Business, United States;2. Word Bank, United States;3. Tilburg University and CEPR, Netherlands and United Kingdom;4. Warwick Business School, United Kingdom;1. Bank of Finland, PO Box 160, 00101 Helsinki, Finland;2. Bank of Finland, PO Box 160, 00100 Helsinki, Finland and University of Turku, Finland;1. Federal Deposit Insurance Corporation, Washington, DC, United States;2. Villanova School of Business, Villanova University, Villanova, PA, United States;3. George Mason University, Department of Economics, Fairfax, VA, United States;4. U.S. Securities and Exchange Commission, Washington, DC, United States |
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| Abstract: | This paper examines the relationship between banks’ capitalization strategies and their corporate governance and executive compensation schemes for an international sample of banks over the 2003–2011 period. Shareholder-friendly corporate governance, in the form of a separation of the CEO and chairman of the board roles, intermediate board size, and an absence of anti-takeover provisions, is associated with lower bank capitalization, consistent with shareholder incentives to shift risk towards the financial safety net. Higher values of executive option and stock wealth invested in the bank are associated with higher capitalization as a potential reflection of executive risk aversion, but the risk-taking incentives embedded in executive compensation packages are associated with lower capitalization. |
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