Do board structure and compensation matter for bank stability and bank performance? Evidence from European banks

Mavrakana, Christina and Psillaki, Maria (2019): Do board structure and compensation matter for bank stability and bank performance? Evidence from European banks.

Abstract

This paper investigates the impact of bank governance on European bank performance and risk- taking. More precisely, using a sample of 75 banks from 18 European countries over the 2004-2016 period, we examine the relationship between bank governance variables namely board size, age of directors, financial experience, board independency, gender diversity, governance system and compensation on bank performance and risk-taking. Our empirical analysis shows that experienced directors increase bank performance and reduce risk-taking. Moreover, female directors have a positive impact on bank performance but the results are mixed for risk-taking. We also find that the one-tier system improves bank performance and reduces credit risk. Moreover, compensation is positively related with bank performance. The empirical findings are inconclusive regarding risk-taking. In addition, the impact of board size and age on bank performance differs, depending on the measure. We find that older members increase risk-taking. Finally, equity linked wealth leads to better bank performance but it also increases risk-taking. Our results differ according to time period and location criteria.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bank governance, financial crises, corporate governance, bank performance, executive compensation
• Subjects: G - Financial Economics > G0 - General > G01 - Financial Crises; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance

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