Corporate Governance and Bank Insolvency Risk : International Evidence

This paper finds that shareholder-friendly corporate governance is positively associated with bank insolvency risk, as proxied by the Z-score and the Merton's distance to default measure, for an international sample of banks over the 2004-08...

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Main Authors:	Anginer, Deniz, Demirguc-Kunt, Asli, Huizinga, Harry, Ma, Kebin
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank Group, Washington, DC 2014
Subjects:	ACCOUNTING ADVERSE EFFECTS ASSET GROWTH ASSET VALUE ASSET VALUES ASSETS RATIO AUDIT COMMITTEE AUDITING AUDITORS BALANCE SHEET BANK ACTIVITIES BANK ASSET BANK ASSETS BANK BAILOUTS BANK CAPITAL BANK CAPITALIZATION BANK FAILURE BANK FAILURES BANK HOLDING BANK HOLDING COMPANIES BANK INSOLVENCY BANK LENDING BANK LIABILITIES BANK LOAN BANK LOANS BANK REGULATION BANK RISK BANK SIZE BANKING INDUSTRY BANKING SECTOR BANKRUPTCY BANKS BOOK VALUE BUDGET BALANCE BUSINESS CYCLE CALL OPTION CAPITAL ADEQUACY CAPITAL ASSETS CAPITAL RATIO CAPITAL RATIOS CAPITAL REQUIREMENTS CAPITALIZATION CASH FLOW CDS COLLATERAL COMMERCIAL BANK COMMERCIAL BANKS CONSUMER PRICE INFLATION CONTINGENT CLAIM CORPORATE BANKRUPTCY CORPORATE DEBT CORPORATE FINANCE CORPORATE GOVERNANCE CORPORATE GOVERNANCE REFORMS CORPORATE GOVERNANCE REGIMES COUNTRY COVERAGE COUNTRY DATA COUNTRY FIXED EFFECTS CREDIBILITY CREDIT EXPANSION CREDIT RISK CREDITORS CREDITWORTHINESS DEBT DEFAULT PROBABILITIES DEFAULT RISK DEFICITS DEGREE OF RISK DEPENDENT DEPOSIT DEPOSIT FUNDING DEPOSIT INSURANCE DEPOSITS DEREGULATION DISTRESSED BANKS DIVIDEND DIVIDEND RATE DIVIDENDS DUMMY VARIABLE DUMMY VARIABLES ECONOMIC GROWTH EQUITY HOLDER EQUITY PRICES EQUITY RATIO EQUITY RETURNS EQUITY VALUE FACE VALUE FAIR VALUE FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FEE INCOME FINANCIAL CRISIS FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL MARKET FINANCIAL SAFETY NET FINANCIAL SAFETY NETS FINANCIAL SERVICES FINANCIAL STUDIES FINANCIAL SUPPORT FINANCIAL SYSTEM FISCAL BALANCE FIXED ASSETS FOREIGN FIRMS GOVERNANCE INDEX GOVERNANCE INDICES GOVERNANCE PRACTICES GOVERNANCE VARIABLES GOVERNMENT BUDGET GOVERNMENT SECURITIES GROWTH RATE HOLDINGS HOLDINGS OF GOVERNMENT SECURITIES INDIVIDUAL BANKS INFLATION INFLATION RATE INSOLVENCY RISK INSOLVENT INSTRUMENT INSURANCE INSURANCE PREMIUM INTANGIBLE INTEREST INCOME INTEREST RATES INTERNATIONAL BANK INTERPOLATION INVESTING INVESTOR PROTECTION LARGE BANKS LIABILITY LIABILITY SIDE LOAN LOSS LOAN LOSS PROVISIONING LOAN PERFORMANCE LOAN QUALITY MARKET DATA MARKET DISCIPLINE MARKET EQUITY MARKET VALUE MARKET VALUE OF EQUITY MERGERS MINORITY SHAREHOLDERS MORAL HAZARD MORTGAGE MORTGAGE-BACKED SECURITIES NATIONAL BANKS NATIONAL ECONOMY NON-PERFORMING LOANS NONPERFORMING LOANS NPL OPERATING INCOME OVERSIGHT OF BANK PERFORMANCE RISK POLICY IMPLICATIONS PROBABILITY OF BANKRUPTCY PUBLIC COMPANIES PUBLIC DEFICITS PUBLIC FINANCES PUBLIC POLICY PUT OPTION RAPID ECONOMIC EXPANSION RATE OF RETURN REAL ESTATE REGULATORS REGULATORY OVERSIGHT REGULATORY RESTRICTIONS REPUTATION RESTRICTIONS ON BANK ACTIVITIES RETURN ON ASSETS RETURN ON EQUITY RISK CONTROLS RISK MANAGEMENT RISK TAKING RISK WEIGHT RISK WEIGHTED ASSETS RISK WEIGHTS RISK-FREE RATE RISKY ASSETS SECURITIES MARKETS SHARE PRICE SHAREHOLDER SHAREHOLDERS SHORT-TERM BORROWING STOCK OPTION STOCK OPTIONS STOCK PRICE STOCK RETURNS SUPERVISORY AGENCY SUPERVISORY AUTHORITIES TANGIBLE ASSETS TAX TRADING TRADING INCOME TRANSACTION TREASURY TREASURY BILL TREASURY BILL RATE VALUATION VALUE OF ASSETS VALUE OF DEBT VOLATILITY WORLD DEVELOPMENT INDICATORS
Online Access:	http://documents.worldbank.org/curated/en/2014/09/20163225/corporate-governance-bank-insolvency-risk-international-evidence http://hdl.handle.net/10986/20343

id	okr-10986-20343
recordtype	oai_dc
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	ACCOUNTING ADVERSE EFFECTS ASSET GROWTH ASSET VALUE ASSET VALUES ASSETS RATIO AUDIT COMMITTEE AUDITING AUDITORS BALANCE SHEET BANK ACTIVITIES BANK ASSET BANK ASSETS BANK BAILOUTS BANK CAPITAL BANK CAPITALIZATION BANK FAILURE BANK FAILURES BANK HOLDING BANK HOLDING COMPANIES BANK INSOLVENCY BANK LENDING BANK LIABILITIES BANK LOAN BANK LOANS BANK REGULATION BANK RISK BANK SIZE BANKING INDUSTRY BANKING SECTOR BANKRUPTCY BANKS BOOK VALUE BUDGET BALANCE BUSINESS CYCLE CALL OPTION CAPITAL ADEQUACY CAPITAL ASSETS CAPITAL RATIO CAPITAL RATIOS CAPITAL REQUIREMENTS CAPITALIZATION CASH FLOW CDS COLLATERAL COMMERCIAL BANK COMMERCIAL BANKS CONSUMER PRICE INFLATION CONTINGENT CLAIM CORPORATE BANKRUPTCY CORPORATE DEBT CORPORATE FINANCE CORPORATE GOVERNANCE CORPORATE GOVERNANCE REFORMS CORPORATE GOVERNANCE REGIMES COUNTRY COVERAGE COUNTRY DATA COUNTRY FIXED EFFECTS CREDIBILITY CREDIT EXPANSION CREDIT RISK CREDITORS CREDITWORTHINESS DEBT DEFAULT PROBABILITIES DEFAULT RISK DEFICITS DEGREE OF RISK DEPENDENT DEPOSIT DEPOSIT FUNDING DEPOSIT INSURANCE DEPOSITS DEREGULATION DISTRESSED BANKS DIVIDEND DIVIDEND RATE DIVIDENDS DUMMY VARIABLE DUMMY VARIABLES ECONOMIC GROWTH EQUITY HOLDER EQUITY PRICES EQUITY RATIO EQUITY RETURNS EQUITY VALUE FACE VALUE FAIR VALUE FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FEE INCOME FINANCIAL CRISIS FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL MARKET FINANCIAL SAFETY NET FINANCIAL SAFETY NETS FINANCIAL SERVICES FINANCIAL STUDIES FINANCIAL SUPPORT FINANCIAL SYSTEM FISCAL BALANCE FIXED ASSETS FOREIGN FIRMS GOVERNANCE INDEX GOVERNANCE INDICES GOVERNANCE PRACTICES GOVERNANCE VARIABLES GOVERNMENT BUDGET GOVERNMENT SECURITIES GROWTH RATE HOLDINGS HOLDINGS OF GOVERNMENT SECURITIES INDIVIDUAL BANKS INFLATION INFLATION RATE INSOLVENCY RISK INSOLVENT INSTRUMENT INSURANCE INSURANCE PREMIUM INTANGIBLE INTEREST INCOME INTEREST RATES INTERNATIONAL BANK INTERPOLATION INVESTING INVESTOR PROTECTION LARGE BANKS LIABILITY LIABILITY SIDE LOAN LOSS LOAN LOSS PROVISIONING LOAN PERFORMANCE LOAN QUALITY MARKET DATA MARKET DISCIPLINE MARKET EQUITY MARKET VALUE MARKET VALUE OF EQUITY MERGERS MINORITY SHAREHOLDERS MORAL HAZARD MORTGAGE MORTGAGE-BACKED SECURITIES NATIONAL BANKS NATIONAL ECONOMY NON-PERFORMING LOANS NONPERFORMING LOANS NPL OPERATING INCOME OVERSIGHT OF BANK PERFORMANCE RISK POLICY IMPLICATIONS PROBABILITY OF BANKRUPTCY PUBLIC COMPANIES PUBLIC DEFICITS PUBLIC FINANCES PUBLIC POLICY PUT OPTION RAPID ECONOMIC EXPANSION RATE OF RETURN REAL ESTATE REGULATORS REGULATORY OVERSIGHT REGULATORY RESTRICTIONS REPUTATION RESTRICTIONS ON BANK ACTIVITIES RETURN ON ASSETS RETURN ON EQUITY RISK CONTROLS RISK MANAGEMENT RISK TAKING RISK WEIGHT RISK WEIGHTED ASSETS RISK WEIGHTS RISK-FREE RATE RISKY ASSETS SECURITIES MARKETS SHARE PRICE SHAREHOLDER SHAREHOLDERS SHORT-TERM BORROWING STOCK OPTION STOCK OPTIONS STOCK PRICE STOCK RETURNS SUPERVISORY AGENCY SUPERVISORY AUTHORITIES TANGIBLE ASSETS TAX TRADING TRADING INCOME TRANSACTION TREASURY TREASURY BILL TREASURY BILL RATE VALUATION VALUE OF ASSETS VALUE OF DEBT VOLATILITY WORLD DEVELOPMENT INDICATORS
spellingShingle	ACCOUNTING ADVERSE EFFECTS ASSET GROWTH ASSET VALUE ASSET VALUES ASSETS RATIO AUDIT COMMITTEE AUDITING AUDITORS BALANCE SHEET BANK ACTIVITIES BANK ASSET BANK ASSETS BANK BAILOUTS BANK CAPITAL BANK CAPITALIZATION BANK FAILURE BANK FAILURES BANK HOLDING BANK HOLDING COMPANIES BANK INSOLVENCY BANK LENDING BANK LIABILITIES BANK LOAN BANK LOANS BANK REGULATION BANK RISK BANK SIZE BANKING INDUSTRY BANKING SECTOR BANKRUPTCY BANKS BOOK VALUE BUDGET BALANCE BUSINESS CYCLE CALL OPTION CAPITAL ADEQUACY CAPITAL ASSETS CAPITAL RATIO CAPITAL RATIOS CAPITAL REQUIREMENTS CAPITALIZATION CASH FLOW CDS COLLATERAL COMMERCIAL BANK COMMERCIAL BANKS CONSUMER PRICE INFLATION CONTINGENT CLAIM CORPORATE BANKRUPTCY CORPORATE DEBT CORPORATE FINANCE CORPORATE GOVERNANCE CORPORATE GOVERNANCE REFORMS CORPORATE GOVERNANCE REGIMES COUNTRY COVERAGE COUNTRY DATA COUNTRY FIXED EFFECTS CREDIBILITY CREDIT EXPANSION CREDIT RISK CREDITORS CREDITWORTHINESS DEBT DEFAULT PROBABILITIES DEFAULT RISK DEFICITS DEGREE OF RISK DEPENDENT DEPOSIT DEPOSIT FUNDING DEPOSIT INSURANCE DEPOSITS DEREGULATION DISTRESSED BANKS DIVIDEND DIVIDEND RATE DIVIDENDS DUMMY VARIABLE DUMMY VARIABLES ECONOMIC GROWTH EQUITY HOLDER EQUITY PRICES EQUITY RATIO EQUITY RETURNS EQUITY VALUE FACE VALUE FAIR VALUE FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FEE INCOME FINANCIAL CRISIS FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL MARKET FINANCIAL SAFETY NET FINANCIAL SAFETY NETS FINANCIAL SERVICES FINANCIAL STUDIES FINANCIAL SUPPORT FINANCIAL SYSTEM FISCAL BALANCE FIXED ASSETS FOREIGN FIRMS GOVERNANCE INDEX GOVERNANCE INDICES GOVERNANCE PRACTICES GOVERNANCE VARIABLES GOVERNMENT BUDGET GOVERNMENT SECURITIES GROWTH RATE HOLDINGS HOLDINGS OF GOVERNMENT SECURITIES INDIVIDUAL BANKS INFLATION INFLATION RATE INSOLVENCY RISK INSOLVENT INSTRUMENT INSURANCE INSURANCE PREMIUM INTANGIBLE INTEREST INCOME INTEREST RATES INTERNATIONAL BANK INTERPOLATION INVESTING INVESTOR PROTECTION LARGE BANKS LIABILITY LIABILITY SIDE LOAN LOSS LOAN LOSS PROVISIONING LOAN PERFORMANCE LOAN QUALITY MARKET DATA MARKET DISCIPLINE MARKET EQUITY MARKET VALUE MARKET VALUE OF EQUITY MERGERS MINORITY SHAREHOLDERS MORAL HAZARD MORTGAGE MORTGAGE-BACKED SECURITIES NATIONAL BANKS NATIONAL ECONOMY NON-PERFORMING LOANS NONPERFORMING LOANS NPL OPERATING INCOME OVERSIGHT OF BANK PERFORMANCE RISK POLICY IMPLICATIONS PROBABILITY OF BANKRUPTCY PUBLIC COMPANIES PUBLIC DEFICITS PUBLIC FINANCES PUBLIC POLICY PUT OPTION RAPID ECONOMIC EXPANSION RATE OF RETURN REAL ESTATE REGULATORS REGULATORY OVERSIGHT REGULATORY RESTRICTIONS REPUTATION RESTRICTIONS ON BANK ACTIVITIES RETURN ON ASSETS RETURN ON EQUITY RISK CONTROLS RISK MANAGEMENT RISK TAKING RISK WEIGHT RISK WEIGHTED ASSETS RISK WEIGHTS RISK-FREE RATE RISKY ASSETS SECURITIES MARKETS SHARE PRICE SHAREHOLDER SHAREHOLDERS SHORT-TERM BORROWING STOCK OPTION STOCK OPTIONS STOCK PRICE STOCK RETURNS SUPERVISORY AGENCY SUPERVISORY AUTHORITIES TANGIBLE ASSETS TAX TRADING TRADING INCOME TRANSACTION TREASURY TREASURY BILL TREASURY BILL RATE VALUATION VALUE OF ASSETS VALUE OF DEBT VOLATILITY WORLD DEVELOPMENT INDICATORS Anginer, Deniz Demirguc-Kunt, Asli Huizinga, Harry Ma, Kebin Corporate Governance and Bank Insolvency Risk : International Evidence
relation	Policy Research Working Paper;No. 7017
description	This paper finds that shareholder-friendly corporate governance is positively associated with bank insolvency risk, as proxied by the Z-score and the Merton's distance to default measure, for an international sample of banks over the 2004-08 period. Banks are special in that "good" corporate governance increases bank insolvency risk relatively more for banks that are large and located in countries with sound public finances, as banks aim to exploit the financial safety net. Good corporate governance is specifically associated with higher asset volatility, more nonperforming loans, and a lower tangible capital ratio. Furthermore, good corporate governance is associated with more bank risk-taking at times of rapid economic expansion. Consistent with increased risk-taking, good corporate governance is associated with a higher valuation of the implicit insurance provided by the financial safety net, especially in the case of large banks. These results underline the importance of the financial safety net and too-big-to-fail policies in encouraging excessive risk-taking by banks.
format	Publications & Research :: Policy Research Working Paper
author	Anginer, Deniz Demirguc-Kunt, Asli Huizinga, Harry Ma, Kebin
author_facet	Anginer, Deniz Demirguc-Kunt, Asli Huizinga, Harry Ma, Kebin
author_sort	Anginer, Deniz
title	Corporate Governance and Bank Insolvency Risk : International Evidence
title_short	Corporate Governance and Bank Insolvency Risk : International Evidence
title_full	Corporate Governance and Bank Insolvency Risk : International Evidence
title_fullStr	Corporate Governance and Bank Insolvency Risk : International Evidence
title_full_unstemmed	Corporate Governance and Bank Insolvency Risk : International Evidence
title_sort	corporate governance and bank insolvency risk : international evidence
publisher	World Bank Group, Washington, DC
publishDate	2014
url	http://documents.worldbank.org/curated/en/2014/09/20163225/corporate-governance-bank-insolvency-risk-international-evidence http://hdl.handle.net/10986/20343
_version_	1764445086342447104
spelling	okr-10986-203432021-04-23T14:03:55Z Corporate Governance and Bank Insolvency Risk : International Evidence Anginer, Deniz Demirguc-Kunt, Asli Huizinga, Harry Ma, Kebin ACCOUNTING ADVERSE EFFECTS ASSET GROWTH ASSET VALUE ASSET VALUES ASSETS RATIO AUDIT COMMITTEE AUDITING AUDITORS BALANCE SHEET BANK ACTIVITIES BANK ASSET BANK ASSETS BANK BAILOUTS BANK CAPITAL BANK CAPITALIZATION BANK FAILURE BANK FAILURES BANK HOLDING BANK HOLDING COMPANIES BANK INSOLVENCY BANK LENDING BANK LIABILITIES BANK LOAN BANK LOANS BANK REGULATION BANK RISK BANK SIZE BANKING INDUSTRY BANKING SECTOR BANKRUPTCY BANKS BOOK VALUE BUDGET BALANCE BUSINESS CYCLE CALL OPTION CAPITAL ADEQUACY CAPITAL ASSETS CAPITAL RATIO CAPITAL RATIOS CAPITAL REQUIREMENTS CAPITALIZATION CASH FLOW CDS COLLATERAL COMMERCIAL BANK COMMERCIAL BANKS CONSUMER PRICE INFLATION CONTINGENT CLAIM CORPORATE BANKRUPTCY CORPORATE DEBT CORPORATE FINANCE CORPORATE GOVERNANCE CORPORATE GOVERNANCE REFORMS CORPORATE GOVERNANCE REGIMES COUNTRY COVERAGE COUNTRY DATA COUNTRY FIXED EFFECTS CREDIBILITY CREDIT EXPANSION CREDIT RISK CREDITORS CREDITWORTHINESS DEBT DEFAULT PROBABILITIES DEFAULT RISK DEFICITS DEGREE OF RISK DEPENDENT DEPOSIT DEPOSIT FUNDING DEPOSIT INSURANCE DEPOSITS DEREGULATION DISTRESSED BANKS DIVIDEND DIVIDEND RATE DIVIDENDS DUMMY VARIABLE DUMMY VARIABLES ECONOMIC GROWTH EQUITY HOLDER EQUITY PRICES EQUITY RATIO EQUITY RETURNS EQUITY VALUE FACE VALUE FAIR VALUE FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FEE INCOME FINANCIAL CRISIS FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL MARKET FINANCIAL SAFETY NET FINANCIAL SAFETY NETS FINANCIAL SERVICES FINANCIAL STUDIES FINANCIAL SUPPORT FINANCIAL SYSTEM FISCAL BALANCE FIXED ASSETS FOREIGN FIRMS GOVERNANCE INDEX GOVERNANCE INDICES GOVERNANCE PRACTICES GOVERNANCE VARIABLES GOVERNMENT BUDGET GOVERNMENT SECURITIES GROWTH RATE HOLDINGS HOLDINGS OF GOVERNMENT SECURITIES INDIVIDUAL BANKS INFLATION INFLATION RATE INSOLVENCY RISK INSOLVENT INSTRUMENT INSURANCE INSURANCE PREMIUM INTANGIBLE INTEREST INCOME INTEREST RATES INTERNATIONAL BANK INTERPOLATION INVESTING INVESTOR PROTECTION LARGE BANKS LIABILITY LIABILITY SIDE LOAN LOSS LOAN LOSS PROVISIONING LOAN PERFORMANCE LOAN QUALITY MARKET DATA MARKET DISCIPLINE MARKET EQUITY MARKET VALUE MARKET VALUE OF EQUITY MERGERS MINORITY SHAREHOLDERS MORAL HAZARD MORTGAGE MORTGAGE-BACKED SECURITIES NATIONAL BANKS NATIONAL ECONOMY NON-PERFORMING LOANS NONPERFORMING LOANS NPL OPERATING INCOME OVERSIGHT OF BANK PERFORMANCE RISK POLICY IMPLICATIONS PROBABILITY OF BANKRUPTCY PUBLIC COMPANIES PUBLIC DEFICITS PUBLIC FINANCES PUBLIC POLICY PUT OPTION RAPID ECONOMIC EXPANSION RATE OF RETURN REAL ESTATE REGULATORS REGULATORY OVERSIGHT REGULATORY RESTRICTIONS REPUTATION RESTRICTIONS ON BANK ACTIVITIES RETURN ON ASSETS RETURN ON EQUITY RISK CONTROLS RISK MANAGEMENT RISK TAKING RISK WEIGHT RISK WEIGHTED ASSETS RISK WEIGHTS RISK-FREE RATE RISKY ASSETS SECURITIES MARKETS SHARE PRICE SHAREHOLDER SHAREHOLDERS SHORT-TERM BORROWING STOCK OPTION STOCK OPTIONS STOCK PRICE STOCK RETURNS SUPERVISORY AGENCY SUPERVISORY AUTHORITIES TANGIBLE ASSETS TAX TRADING TRADING INCOME TRANSACTION TREASURY TREASURY BILL TREASURY BILL RATE VALUATION VALUE OF ASSETS VALUE OF DEBT VOLATILITY WORLD DEVELOPMENT INDICATORS This paper finds that shareholder-friendly corporate governance is positively associated with bank insolvency risk, as proxied by the Z-score and the Merton's distance to default measure, for an international sample of banks over the 2004-08 period. Banks are special in that "good" corporate governance increases bank insolvency risk relatively more for banks that are large and located in countries with sound public finances, as banks aim to exploit the financial safety net. Good corporate governance is specifically associated with higher asset volatility, more nonperforming loans, and a lower tangible capital ratio. Furthermore, good corporate governance is associated with more bank risk-taking at times of rapid economic expansion. Consistent with increased risk-taking, good corporate governance is associated with a higher valuation of the implicit insurance provided by the financial safety net, especially in the case of large banks. These results underline the importance of the financial safety net and too-big-to-fail policies in encouraging excessive risk-taking by banks. 2014-10-02T20:31:42Z 2014-10-02T20:31:42Z 2014-09 http://documents.worldbank.org/curated/en/2014/09/20163225/corporate-governance-bank-insolvency-risk-international-evidence http://hdl.handle.net/10986/20343 English en_US Policy Research Working Paper;No. 7017 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Group, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research

Corporate Governance and Bank Insolvency Risk : International Evidence

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