Developments in the european banking industry: corporate governance, performance, competition and reform

Abstract

Corporate governance has become a leading topic of research, considering its importance as an implement for transparency in financial markets and corporations. On the other hand, the role of the banks is fundamental in any economy that urges for strong corporate governance. Banks are “special” financial institutions posing unique corporate governance challenges. However, very little attention has been paid to the corporate governance of banks. Recent scandals in the financial sector have brought corporate governance at the forefront of academic and supervisory attention. Banks’ versatile role in the economic system has caught regulatory and supervisory interest around the world in an effort to inspire high quality corporate governance standards. Board structure, in the sense of board size and composition, and its impact on corporate performance constitutes an indispensable and, at the same time, prevalent theme of the corporate governance discussion. This thesis examines corporate governance issues in the European banking industry. More specifically, it examines the relationship between board structure and performance, on a sample of 57 large European banks, over the period 2002-2006. The board structure mechanisms applied, are the size of the board of directors and the percentage of non-executives on the board. In addition, this study employs different measures of firm financial performance both market-based and accounting based. Control variables for the bank size and risk as well as for the different corporate governance system are included in the models. The empirical analysis also incorporates a number of bank-specific variables. […]