CORPORATE GOVERNANCE AND THE PERFORMANCE OF COMMERCIAL BANKS: A FUZZY-SET QCA APPROACH

Authors

  • Augusto Felício University of Lisbon
  • Ricardo Rodrigues University of Lisbon Centre for Management Studies
  • António Samagaio University of Lisbon

Abstract

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.

References

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.

Downloads

Published

2016-01-27

Issue

Vol. 26 No. 1 (2016): Special Issue

Section

Articles

License

The Journal of Small Business Strategy (the “Publisher”) and the Author(s) agree as follows:
 
1.Author(s) hereby grant to Publisher all right, title, and interest in and to the Work, including copyright to all means of expression by any method now known or hereafter developed, including electronic format. If Publisher does not publish the Work within two (2) years of the Effective Date, copyright shall revert back to the Author. Publisher agrees to always credit Author(s) as the author(s) of the Work.
 
2.Publisher hereby grants Author a royalty-free, limited license for the following purposes, provided the Work is always identified as having first been published by Publisher.
    •The right to make and distribute copies of all or part of the Work for use in teaching;
    •The right to use all or part of the material contained in the Work in a book by the Author(s), or in a collection of the Author(s)’s work;
    •The right to use and distribute the Work internally at the Author(s)’s place of employment, and for promotion and any other non-commercial purposes;
    •The right to use figures and tables from the Work for any purpose;
    •The right to make presentations of material from the Work;
    •The right to use and distribute the Work on the Author(s)’s Web site and on the Author(s)’s university’s institute repository;
Such license shall be effective when the Work is first published in the Journal of Small Business Strategy.
 
3.The Author(s) represents and warrants that the Work: (a) is the Author(s)’s original work and that Author(s) has full power to enter into this agreement; (b) does not infringe the copyright or property right of another; (c) contains no materials which is obscene, libelous, defamatory or violates another’s civil right, right of privacy, or is otherwise unlawful; and (d) has not been previously published, in whole or in part. Author(s) shall indemnify and hold Publisher harmless against loss or expenses arising from breach of any such warranties.

How to Cite

CORPORATE GOVERNANCE AND THE PERFORMANCE OF COMMERCIAL BANKS: A FUZZY-SET QCA APPROACH. (2016). Journal of Small Business Strategy (archive Only), 26(1), 87-101. https://libjournals.mtsu.edu/index.php/jsbs/article/view/580