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Corporate governance and performance of financial institutions

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  • Zagorchev, Andrey
  • Gao, Lei

Abstract

We examine how corporate governance affects financial institutions in the U.S. between 2002 and 2009. First, we find that better governance is negatively related to excessive risk-taking and positively related to the performance of U.S. financial institutions. Specifically, sound overall and specific governance practices are associated with less total non-performing assets, less real estate non-performing assets, and higher Tobin's Q. Second, we show that better governance contributes to higher provisions and reserves for loan/asset losses of financial institutions, supporting the income smoothing hypothesis. Moreover, the results are similar without the financial crisis period, and different robustness checks confirm the analysis.

Suggested Citation

  • Zagorchev, Andrey & Gao, Lei, 2015. "Corporate governance and performance of financial institutions," Journal of Economics and Business, Elsevier, vol. 82(C), pages 17-41.
    • Handle: RePEc:eee:jebusi:v:82:y:2015:i:c:p:17-41
    DOI: 10.1016/j.jeconbus.2015.04.004
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