Governance, crash risk, and systemic risk: evidence from large US banks Online publication date: Thu, 30-Apr-2015
by Michaël Dewally; Susan M.V. Flaherty; Yingying Shao
International Journal of Corporate Governance (IJCG), Vol. 5, No. 3/4, 2014
Abstract: This study investigates how the governance structure of bank holding companies (BHC) influences two types of market risks: crash risk and systemic risk. Using a sample of large BHC in the USA, we find limited evidence that high pay sensitivity is positively associated with banks' crash risk. In addition, high pay sensitivity and weak governance increase the systemic risk of banks. This study provides empirical support that governance decisions impact banks' risk exposure differently compared to those of corporate firms: 1) in opposite to the desired direction; 2) in conflicting manner. The study lends thus more credence to the recent call for redesigning the incentives and monitoring structure of banking industry. Our findings are important to regulators as they evaluate how best to intervene in the banking industry to forestall market contagion and failure. In particular, recent changes in capital requirements might not suffice to prevent future system shocks.
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Corporate Governance (IJCG):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email subs@inderscience.com
Our Blog 
Follow us on Twitter 
Visit us on Facebook