Bank CEO risk-taking incentives and bank lending quality

In the developed markets, good earnings quality could effectively reduce information asymmetries in loan syndication. However, our results shows that earnings quality plays a limited role in loan syndications in a market where the state has dominant power. Examining a sample of syndicated loans to Chinese corporate borrowers, we find that state ownership overrides the signaling role of earnings quality in alleviating the problems of adverse selection and moral hazard, as it provides an implicit guarantee of the loan repayment. Nonetheless, interestingly, firms with better earnings quality, regardless of their state ownership, are rewarded with more favorable loan price. Such an overriding role of state-ownership over syndicated loan contracting prevails even with the presence of foreign lender participation, which suggests that foreign banks seem to have followed the conventional wisdom that 'when in Rome, do as the Romans do'.

Section: Introductionmentioning

confidence: 99%

When in Rome, do as the Romans do: loan syndication in a state-dominated market

Zhang

Mi²,

Shen³

et al. 2023

Bank failure prediction: corporate governance and financial indicators

Alzayed

Eskandari

Yazdifar

2023

This paper reiterates the importance of corporate governance in banks. Failure prediction studies have mainly relied on using financial ratios as predictors. The most suitable financial predictors for banks are financial ratios following the CAMEL rating system. Also, corporate governance has been proven to be an important aspect of banks, especially after the financial crisis. Given its importance, the novelty of this paper is to test the ability of corporate governance to increase the accuracy and extend the time-horizon of bank failure prediction in the US market. Using discriminant analysis, we predict the failure of banks insured by the Federal Deposit Insurance Corporation from 2010 to 2018. Using financial and non-financial predictors, we find that combining CAMEL ratios with corporate governance variables not only increases the accuracy of prediction but also extends the time horizon to three years before failure. We also show that bank earnings is a more significant predictor than capital structure and asset quality. The results further reveal that CEO compensation, voting rights and institutional ownership are significant predictors. These results are robust when using logit regression and out-of-sample examination. This study shows that corporate governance plays a key role in the success or failure of banks. The regulatory implication of this paper is that more attention needs to be directed to corporate governance and earnings aspects of banks rather than focusing on capital structure.

Determinants of bank efficiency in developed (G7) and developing (E7) countries: role of regulatory and economic environment

Nasim,

Nasir,

Downing

2024

Efficiency is one of the key factors promoting the long-term performance and sustainability of the banking industry. In this context, this paper investigates the implications of the regulatory environment, macroeconomic factors, monetary conditions, and uncertainty for the banking sectors’ operating as well as investment efficiencies. Using data from G7 and E7 countries from 2001 to 2020, we employ a set of empirical techniques, including Fixed Effects, Random Effects, Panel Fully Modified Least Squares, Panel Dynamic Least Squares and Generalized Method of Moments. Our key findings show that leverage, capital adequacy, monetary conditions, economic growth, price stability as well as exchange rate stability and uncertainty have substantial effects on bank efficiency, with notable differences between impact on operational and investment efficiencies and developed (G7) and developing (E7) economies.