454 aidea2013 banking and finance

Does corporate governance matter in systemic risk-taking? Evidence from European banks

Francesca Battaglia
Senior lecturer, Department of Management, University of Naples "Parthenope", Italy [e-mail] Domenico Curcio
Senior lecturer, Department of Economics and Finance, University of Naples "Federico II", Italy [e-mail] Angela Gallo
Senior lecturer, Department of Business Studies and Research, University of Salerno, Italy [e-mail] Abstract
It is widely recognized that the 2007-09 financial crisis is to a large extent attributable to excessive bank risk-taking, increasing systemic risk and that shortcomings in bank corporate governance played a central role in the development of the crisis. This research examines the nature of the relation between bank board structure and bank risk-taking by focusing on the risk exposure in extreme conditions (tail risks) both for the individual banks (expected shortfall) and for the bank in relation to extreme market conditions (systemic risk). We also control for the effect on traditional risk measures, such as leverage and stock return volatility. In particular, we analyse a sample of 40 large publicly traded European banks over the period 2007-2010, and test whether banks with stronger bank boards (boards reflecting more of bank shareholders interest) are associated with higher tail risks; moreover, we investigate whether this relation changes for the Systemically Important Banks (SIBs) included in our sample. Overall, our results suggest that the board structure plays an important impact on bank ' tail and systemic risk-taking and financing policies during the crisis. In particular, it clearly emerges that each characteristics of the board structure seems to be more effective in influencing specific type of banks risk exposure. Board size and meeting have an effect on tail and systemic risk exposure, while board independence on the leverage. These results could shed a

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