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2022 | Buch

Corporate Governance in the Banking Sector

Theory, Supervision, ESG and Real Banking Failures


Über dieses Buch

This book gives an overview of the most important theories on Corporate Governance, investigating the myth and the reality of it. It argues that within the banking sector exist two new agency costs (i.e., bank depositors and shareholders vs. directors and bank depositors vs. shareholders and directors). These agency problems are difficult to reduce for two reasons. First, banks are complex and opaque. Second, government implicit guarantees and the deposit insurance systems reduce the monitoring of depositors.

This book also takes a deep dive into research on CG in the banking sector via a unique and innovative literature review covering the time period between 2000-2020. It finds that some specific CG characteristics affect banks: risk appetite, performance, accounting quality, compensation and corporate social responsibility disclosure.

Furthermore, this publication contends that institutional investors are changing CG for the better, describing how major financial markets factors such as rating agencies and sell-side financial analysts make CG visible. Additionally, it investigates how managerial biases and irrational investors can affect CG negatively, leading to company distress.

All-in-all, this book makes a threefold contribution: for regulators, it offers suggestions on how to improve banks’ supervision; for researchers, it suggests new research topics; and for practitioners, it connects CG theory with real cases of CG failure.


Chapter 1. The Meaning of Corporate Governance and its Role in the Banking Sector
This chapter aims to clarify the meaning of corporate governance (CG). The first part focuses on the main difficulties that regulators, practitioners, and the general public face when discussing CG. We identify four aspects that can exacerbate these difficulties. First, CG regulation is a recent topic and this is even more true in the banking sector. Second, CG looks at directors’ attributes and social aspects; these elements are very difficult to measure and operationalize. Third, the different types of ownership structures change and affect board’s goals and characteristics. Fourth, CG models differ according to the diverse forms of capitalism. Three main CG models are identified in literature: the Anglo-American model, the Continental European model, and the Japanese model.
The second part defines CG with a focus on the banking sector.
Bruno Buchetti, Alessandro Santoni
Chapter 2. Corporate Governance (CG) Theories and the Banking Sector
This chapter aims to clarify the main CG theories. It begins with the agency theory, investigating how the agency costs change in the banking environment. Then, shareholder’s and stakeholder’s theories are described and compared. Finally, it explains other CG theories, that is, the resource dependency theory (RDT), the resource-based view theory (RBV), the stewardship theory, and the upper echelon theory (UET).
Bruno Buchetti, Alessandro Santoni
Chapter 3. Corporate Governance in the Banking Sector (CGBS): A Literature Review
This chapter investigates how researchers across the world are trying to disentangle the CGBS concept. It scrutinizes the main CGBS articles published from 2000 to 2020 and identifies the most studied CG areas, that is, risk appetite, board diversity, ownership structure, role of CEO, compensation, Islamic banking system, CSR (corporate social responsibility) and ESG (environmental, social, and corporate governance), and political connections. Finally, it identifies the main results and provides ad hoc tips and advice to regulators and researchers.
Bruno Buchetti, Alessandro Santoni
Chapter 4. CG Stock Markets and the Environmental, Social, and Corporate Governance (ESG) Indicators
In this chapter, we review the theoretical and empirical literature on the relationship between bank governance and stock performance. Academic analysis concludes that there are various and very diverse findings on several governance parameters that might affect stock performance of companies. We highlighted four relations between stock prices and ownership concentration, board of directors, executive compensation, and finally executive management. This part is different from previous chapter because we focus only on stock performance.
Bruno Buchetti, Alessandro Santoni
Chapter 5. Corporate Governance and Behavioral Finance
Board’s decision-making process and CEOs’ biases have been at the center of academic literature studies on behavior economics following the financial crisis in the first decade of 2000. We described some of the most common irrational beliefs or behaviors that can unconsciously influence board’s and CEOs’ decision-making process.
Bruno Buchetti, Alessandro Santoni
Chapter 6. Why Corporate Governance Matters? Spectacular Defaults
In the following chapter, we concentrate our attention to specific banking crisis events to pass from the theory to the practice and identify concrete governance failure cases. Grant Kirkpatrick of OECD (Economic Co-operation and Development) (2009) analyzed, in his corporate governance lessons from the financial crisis, the relationship between weak corporate governance and failures on several banking crises highlighting the strong correlation. He underlined that the 2006–2008 financial meltdown was characterized by severe shortcomings in internal governance, in risk management, and in the role of the board in overseeing risk management. These failures ranged from the following:
Bruno Buchetti, Alessandro Santoni
Corporate Governance in the Banking Sector
verfasst von
Dr. Bruno Buchetti
Alessandro Santoni
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