CORPORATE GOVERNANCE AND THE PERFORMANCE OF COMMERCIAL BANKS: A FUZZY-SET QCA APPROACH
This paper examines the role of commercial banks’ governance mechanisms in financial performance and loan quality. The research draws upon corporate governance theory, agency theory, and information asymmetry. Fuzzy-set QCA was used to analyze a sample of 32 commercial banks listed in the UK. Data referred to the pre-crisis period. Results confirm that different combinations of governance mechanisms can yield similar financial performance and loan quality. This research contributes to a better understanding of the relationships among banking governance mechanisms, financial performance, and loan quality. The paper also has practical implications because it identifies alternative governance solutions for the commercial banking sector.
Adams, R., & Mehran, H. (2003). Is corporate governance different for bank holding companies? Economic Policy Review, Federal Reserve Bank of New York, April, 123-142.
Allen, F. (1993). Stock markets and resource allocation. In C. Mayer & X. Vives (Eds.), Capital Markets and Financial Intermediation, (81-108). Cambridge, U.K.: Cambridge University Press.
Beck, T., Demirgüç-Kunt, A., & Maksimovic, V. (2008). Financing patterns around the world: are small firms different? Journal of Financial Economics, 89, 467-487.
Beck, T., Demirgüç-Kunt, A., & Pería, M. S. M. (2011). Bank financing for SMEs: evidence across countries and bank ownership types. Journal of Financial Services Research, 39, 35-54.
Belkhir, M. (2009). Board of directors’ size and performance in the banking industry. International Journal of Managerial Finance, 5, 201-221.
Bicksler, J.M. (2008). The subprime mortgage debacle and its linkage to corporate governance. International Journal of Disclosure and Governance, 5, 296-300.
Black, B., Jang, H., Kim, W., & Mark, J. (2002). Does corporate governance affect firm value? Evidence from Korea. Working Paper. Stanford Law School.
Carcello, J.V., & Neal, T.L. (2000). Audit committee characteristics and auditor dismissals following “New” going-concern reports. The Accounting Review, 78, 95-117.
Cashman, G.D., Gillan, S.L., & Jun, C. (2012). Going overboard? On busy directors and firm value. Journal of Banking and Finance, 36, 3248-3259.
Chen, W. P., Chung, H., Lee, C., & Liao, W. L. (2007). Corporate governance and equity liquidity: Analysis of S&P transparency and disclosure rankings. Corporate Governance: An International Review, 15, 644–660.
Colvin, G. (2008). Rewarding failure. Fortune, July 18.
Core, J.E., Holthausen, R.W., & Larcker, D.F. (1999). Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics, 51, 371-406.
Crilly, D., Zollo, M., & Hansen, M. T. (2012). Faking it or muddling through? Understanding decoupling in response to stakeholder pressures. Academy of Management Journal, 55(6), 1429–1448.
Daily, C.M, & Dalton, D.R. (1994), Corporate governance in the small firm: Prescriptions for CEOs and directors. Journal of Small Business Strategy, 5 (1), 57-68.
Dalton, D.R., Daily, C.M., Johnson, J.L., & Ellstrand, A.E. (1999). Number of directors and financial performance: A meta-analysis. Academy of Management Journal, 42, 674-86.
Deshmukh, S. (2005). The effect of asymmetric information on dividend policy. Quarterly Journal of Business & Economics, 44, 107–127.
Dermine, J. (2013). Bank corporate governance, beyond the global banking. Financial Markets, Institutions & Instruments, 22, 259–281.
Diamond, D.W., & Verrecchia, R.E. (1991). Disclosure, liquidity, and the cost of capital. Journal of Finance, 46 (4), 1325-1359.
Elyasiani, E., & Jia, J.J. (2008). Institutional ownership stability and BHC performance. Journal of Banking and Finance, 32, 1767–1781.
Felício, J.A., Ivashkovskaya, I., Rodrigues, R., & Stepanova, A. (2014). Corporate governance and performance in the largest European listed banks during the financial crisis. INNOVAR, 24(53), 83-98.
Ferris. S., Jagannathan, M., & Pritchard, A.C. (2003). Too busy to mind the business? Monitoring by directors with multiple board appointments. The Journal of Finance, 58, 1087-111.
Feurer, M., Springenberg, T., & Hutter, F. (2015). Initializing Bayesian hyperparameter optimization via meta-learning. In AAAI Conference on Artificial Intelligence, 1128–1135.
Fiss, P. C. (2011). Building better causal theories: A fuzzy set approach to typologies in organization research. Academy of Management Journal, 54(2), 393–420.
Finegold, D., Benson, G., & Hecht, D. (2007). Corporate Boards and Company Performance: Review of research in light of recent reforms. Corporate Governance An International Review, 15(5), 865-878.
Florackis, C., & Ozkan, A. (2009). The impact of managerial entrenchment on agency costs: An empirical investigation using UK panel data. European Financial Management, 15, 497–528.
Friedman, B. M. (2011). Learning from the crisis: what can central banks do? In Challenges to Central Banking in the Context of Financial Crisis, Subir Gokarn. New Delhi: Academic Foundation
Grove, H., Patelli, L., Victoravich, L. M., & Xu, P. (2011). Corporate governance and performance in the wake of the financial crisis: evidence from U.S. commercial banks. Corporate Governance: An International Review, 19(5), 418-436.
Gul, F., Kim, J. B., & Qiu, A. (2010). Ownership concentration, foreign shareholding, audit quality, and stock price synchronicity: Evidence from China. Journal of Financial Economics, 95, 425–442.
Harris, L.E. (1994). Minimum price variations, discrete bid-ask spreads, and quotation sizes. Review of Financial Studies, 7 (1), 149-178.
Harris, I.C., & Shimizu, K. (2004). Too busy to serve? An examination of the influence of over boarded directors. Journal of Management Studies, 41, 775-798.
Harris, M., & Raviv, A. (2008). A theory of board control and size. Review of Financial Studies, 21 (4), 1797-1832.
Hartzell, J.C., & Starks, L.T. (2004). Institutional investors and executive compensation. Journal of Finance, 58, 2351-2378.
Hermalin, B.E., & Weisbach, M.S. (2003). Boards of directors as an endogenously determined institution: A survey of the economic literature. Economic Policy Review, 9, 7–26.
Iver, R., Pedydró, J.-L., da-Rocha-Lopes, S., & Schoar, A. (2013). Interbank liquidity crunch and the firm credit crunch: Evidence from the 2007–2009 crisis. The Review of Financial Studies, doi: 10.1093/rfs/hht056
Jensen, J.C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. Journal of Finance, 48, 1-80.
Jiang, H., Habib, A., & Hu, B. (2011). Ownership concentration, voluntary disclosures and information asymmetry in New Zealand. British Accounting Review, 43, 39–53.
Jiménez-Jiménez, D., & Sanz-Valle, R., 2011. Innovation, organizational learning, and performance. Journal of Business Research, 64 (4), pp. 408-417.
Jiraporn, P., Singh, M., & Lee, C. (2009). Ineffective corporate governance. Director busyness and board committee memberships. Journal of Banking and Finance, 33, 819-828.
Kennedy, D.B., Sivakumar, R., & Vetzal, K.R. (2006). The implications of IPO underpricing for the firm and insiders: Tests of asymmetric information theories. Journal of Empirical Finance, 13(1), 49-78.
Klein, A. (2002). Audit committee, board of director characteristics, and earnings management. Journal of Accounting and Economics, 33, 375-400.
Larcker, D.F., Richardson, S.A., & Tuna, I. (2007). Corporate governance, accounting outcomes, and organizational performance. The Accounting Review, 82, 963-1008.
Lin, C., Ma, Y., Malatesta, P., & Xuan, Y. (2011). Ownership structure and the cost of corporate borrowing. Journal of Financial Economics, 100, 1–23.
McNulty, T., Florackis, C. & Ormrod, P. (2013). Board of directors and financial risk during the credit crisis. Corporate Governance: An International Review, 21(1), 58-78.
Miller, J. S., Wiseman, R. M., & Gomez-Mejia, L. R. (2002). The fit between CEO compensation design and firm risk. Academy of Management Journal, 45(4), 745-756.
Newman, H.A., & Mozes, H.A. (1999). Does the composition of the compensation committee Influence CEO compensation practices? Financial Management, 28, 41-56.
Pawlina, G., & Renneboog, L. (2005). Is investment-cash flow sensitivity caused by agency costs or asymmetric information? Evidence from the UK. European Financial Management, 11, 483–513.
Ragin, C. C. (2008). Redesigning social inquiry: Fuzzy sets and beyond. Chicago: University of Chicago Press.
Ragin, C.C., & Fiss, P.C. (2008). Net effects analysis versus configurational analysis: An empirical demonstration. In C.C. Ragin (Ed.), Redesigning social inquiry: Fuzzy sets and beyond: 190–212. Chicago: University of Chicago Press.
Rajgopal, S., & Venkatachalam, M. (1997). The role of institutional investors in corporate governance: An empirical investigation. Working paper. Duke University.
Renders, A., & Gaeremynck, A. (2012). Corporate governance, principal–principal agency conflicts, and firm value in European listed companies. Corporate Governance: An International Review, 20(2), 125–143.
Rihoux, B., & Ragin, C. C. (2009). Configurational comparative methods: Qualitative comparative analysis (QCA) and related techniques. London: Sage Publications Lda.
Shleifer, A., & Vishny, R.W. (1997). A survey of corporate governance. The Journal of Finance, 52, 737-783.
Shang, A. (2003). Earnings management and institutional ownership. Working paper. Harvard University.
Smith, M. (1996). Shareholder activism by institutional investors: Evidence from CalPERS. The Journal of Finance, 51, 227-252.
Vafeas, N. (2005). Audit committees, boards, and the quality of reported earnings. Contemporary Accounting Research, 22, 1093-1122.
Valenti, M.A., Mayfield, C.O., & Luce, R.A. (2010). What attracts directors to boards of small- and mid-sized companies? Journal of Small Business Strategy, 21(1), 65-82
Van Essen, M., Engelen, P.J., & Carney, M. (2013). Does "good" corporate governance help in a crisis? The impact of country- and firm-level governance mechanisms in the European financial crisis. Corporate Governance: An International Review, 21(3), 201-224.
Walkner, C. (2004). Issues in corporate governance. European Commission: Brussels.
Wei, Y.S., Samiee, S., & Lee, R.P., 2014. The influence of organic organizational cultures, market responsiveness, and product strategy on firm performance in an emerging market. Journal of the Academy of Marketing Science, 42(1), pp.49-70.
Zingales, L. (2008). “Plan B”, the economist’s voice. Article 4. Berkeley Electronic Press.
Zhou, J., & Chen, K.Y. (2004). Audit committee, board characteristics and earnings management by commercial banks. Working Paper. SUNY at Binghamton.