Independence in bank governance structure: Empirical evidence of effects on bank risk and performance

[Display omitted] We investigate how different governance arrangements affect risk and return in banks. Using a new data set for UK banks over the period 2003–2012, we employ a simultaneous equations framework to control for the reciprocal relationship between risk and return. We show that separatio...

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Bibliographic Details
Published inResearch in international business and finance Vol. 52; p. 101177
Main Authors Harkin, S.M., Mare, D.S., Crook, J.N.
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.04.2020
Subjects
Bank
Ownership
Risk
Simultaneous equations
C30
Simultaneous equations
Ownership
Bank
G21
G32
G34
Risk
G28
Performance
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Summary:[Display omitted] We investigate how different governance arrangements affect risk and return in banks. Using a new data set for UK banks over the period 2003–2012, we employ a simultaneous equations framework to control for the reciprocal relationship between risk and return. We show that separation of the roles of CEO and Chairman increases bank risk without causing a concurrent increase in return. We also find that oversight by a Remuneration Committee and Non-Executive Directors (NEDs) lowers the probability of bank failure, indicating that empowering an independent Chairman has different effects from empowering independent NEDs. Overall, our results underline the importance of accounting for the heterogeneity in corporate governance arrangements within banks.
ISSN:0275-5319
1878-3384
DOI:10.1016/j.ribaf.2019.101177