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Discussion Paper Details

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Title: How does corporate governance affect bank capitalization strategies?

Author(s): Deniz Anginer, Asli Demirguc-Kunt, Harry Huizinga and Kebin Ma

Publication Date: October 2013

Keyword(s): Bank capital, Corporate governance, Dividend payouts and Executive compensation

Programme Area(s): International Macroeconomics

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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Bibliographic Reference

Anginer, D, Demirguc-Kunt, A, Huizinga, H and Ma, K. 2013. 'How does corporate governance affect bank capitalization strategies?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9674