Risk management,corporate governance,and bank performance in the financial crisis |
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Authors: | Vincent Aebi Gabriele Sabato Markus Schmid |
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Institution: | 1. Swiss Institute of Banking and Finance, University of St. Gallen, CH-9000 St. Gallen, Switzerland;2. Royal Bank of Scotland, Group Risk Management, 1000EA Amsterdam, Netherlands;3. University of Mannheim, Finance Area, D-68131 Mannheim, Germany |
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Abstract: | The recent financial crisis has raised several questions with respect to the corporate governance of financial institutions. This paper investigates whether risk management-related corporate governance mechanisms, such as for example the presence of a chief risk officer (CRO) in a bank’s executive board and whether the CRO reports to the CEO or directly to the board of directors, are associated with a better bank performance during the financial crisis of 2007/2008. We measure bank performance by buy-and-hold returns and ROE and we control for standard corporate governance variables such as CEO ownership, board size, and board independence. Most importantly, our results indicate that banks, in which the CRO directly reports to the board of directors and not to the CEO (or other corporate entities), exhibit significantly higher (i.e., less negative) stock returns and ROE during the crisis. In contrast, standard corporate governance variables are mostly insignificantly or even negatively related to the banks’ performance during the crisis. |
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Keywords: | G01 G21 G32 G34 |
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