Effect of Corporate Governance on Banking Failure
محورهای موضوعی : Financial Econometrics
Azam Ahmadyan
1
(Faculty in Banking Department, Monetary and Banking Research Institute, Tehran, Iran)
Mehdi Ghasemi Ali Abadi
2
(Risk Manager, Implementation and Fighting Money Laundering in Parsian Bank, Tehran, Iran)
کلید واژه: Corporate Governance, Logestic model, Banking Failure,
چکیده مقاله :
We analyse the roles of bank Directors’ Effectiveness, Transparency and the Dis-closure, Responsibility and total corporate governance indicator in bank failures during 2006-2019, using Logistic model and Kaplan-Meier method. This study completes other studies to make composite banking failure indicator. Good corpo-rate governance indicator was made. That it is one if corporate governance indica-tors for each bank are more than mean of sample and otherwise, it is zero. Forth we estimate the survival model according corporate governance indicators. Our results suggest that failures are strongly influenced by Corporate governance indicators. High Directors’ Effectiveness, Responsibility and total corporate governance indicator decrease failure risk significantly. In contrast Transparency and the Disclosure increase failure risk. These findings suggest that banks with more transparency are less survival than others. In contrast Responsibility has most effect on survival banks. There are positive relationship between bank size, inflation and banking failure and negative relationship between economic growth and banking failure indicator.
Reference
[1] Al Mamun, A., Yasser, Q. R., Entebang, H., Nathan, T. M., Gender Diversity and Economic Performance of Frms: Evidences from Emerging Market, Journal of Economic Development Management, IT, Finance and Marketing, 2013, 5(2), P.100-110.
[2] Anderson, H., Failure Prediction of Norwegian Banks: A Logit Approach, Norwegian: Financial Market Department of Norges Bank, 2008.
[3] Ashraf, D., Ramady, M., Albinali, K., Financial Fragility of Banks, Ownership Structure and Income Diversification: Empirical Evidence from the GCC Region, Research in International Business and Finance, 2016, 38, P. 56-68, Doi:10.1016/j.ribaf.2016.03.010.
[4] Attia, M. B. R., Accounting Income Smoothing, Hedging and Corporate Governance, Global Business and Management Research: An International Journal, 2012, 4(2), P.149-163.
[5] Berger, Allen N., Imbierowicz, B., Rauch, C., The Roles of Corporate Governance in Bank Failures during the Recent Financial Crisis, Journal of Money, Credit & Banking, 2016, 48(4), P.729-770, Doi:10.1111/jmcb.12316.
[6] Carroll, A. B., The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders, Business Horizons, 1991, 34(4), P.39-48, Doi:10.1016/0007-6813(91)90005-G.
[7] Chidziva, B., The Role of Corporate Governance in Preventing Bank Failures in Zimbabwe, Walden University ,Scholar Works, https://scholarworks.waldenu.edu/dissertations Part of the Business Administration, Management, and Operations Commons, Finance and Financial Management Commons, and theManagement Sciences and Quantitative Methods Commons, 2016.
[8] Cole, R. A., Jeffery W. G., Separating the Timing and Llikelihood of Bank Failure, Journal of Banking and Finance, 1995, 19(6), P.1073-1089, Doi:10.1016/0378-4266(95)98952-M.
[9] Cole, R. A., Jeffery W. G., Predicting Bank Failures: A Comparison of on- and Off-Site Monitoring Systems, Journal of Financial Services Research, 1998, 13(2), P.103-117, Doi:10.1023/A:1007954718966.
[10] Cole, R. A., Lawrence J. W., Déjà Vu all over again: The Causes of US Commercial Bank Failures this Time around, Journal of Financial Services Research, 2012, 42(1), P.5-29, Doi: 10.1007/s10693-011-0116-9.
[11] Dechow, P., Sloan, R., Sweeney, A., Detecting Earnings Management, The Accounting Review, 1995, 70, P.193-225.
[12] Donaldson, L., Davis, J. H., CEO Governance and Shareholder Returns: Agency Theory or Stewardship Theory, Annual Meeting of the Academy of Management, Washington, 1989, P.49-63.
[13] Donaldson, L., Davis, J. H., Stewardship Theory or Agency Theory: CEO Governance and Shareholder Returns, Australian Journal of Management, 1991, 16, P.49- 65, Doi:10.1.1.199.6439.
[14] Espahbodi, P., Identification of Problem Banks and Binary Choice Models. Journal of Banking and Finance, 1991, 15(1), P.53-71, Doi:10.1016/0378-4266(91)90037-M.
[15] Fama, E., Jensen, M. C., Separation of Ownership and Control, Journal of law and Economics, 1983, 26, P.301–325.
[16] Farag, H., Mallin, C., Board Diversity and Financial Fragility: Evidence from European Banks, International Review of Financial Analysis, 2016, 49, P.98-112, Doi: 10.1016/j.irfa.2016.12.002.
[17] Fauziah W, Yusoff, W., Alhaji, I. A., Insight of Corporate Governance Theories, Journal of Business and Management, 2012, 1, P.52-63, Doi:10.12735/jbm.v1i1p52.
[18] Fisher, R. A., Inverse Probability and the Use of Likelihood. Proc, Camb. Philos. Soc., 1932, 28, P.257–261, Doi:10.1017/S0305004100010094.
[19] Francis, M., Governance and Financial Fragility: Evidence from a Cross-Section of Countrie, Bank of Canada, working paper1701-93972003-34, 2003.
[20] Ghasemi Ali Abadi, M., Shakeri, A., Nassiri Aghdam, A., Introducing A Model to Measure the Corporate Governance Index in Usury-Free Banking, Money and Banking, 2017, 12(1), P.55-71.
[21] Guo, L., Smallman, C., Radford, J., A Critique of Corporate Governance in China, International Journal of Law and Management, 2013, 55, P.257-272, Doi:10.1108/ijlma-10-2011-0012.
[22] Helwege, Jean., Determinants of Savings and Loan failures: Estimates of a Time-Varying Proportional hazard function, Journal of Financial Services Research, 1996, 10(4), P.373-392.
[23] Hillman, A. J., Dalziel, T., Boards of Directors and Firm Performance: Integrating Agency and Resource Dependency Perspectives, Academy of Management Review, 2003, 28(3), P.383–396, Doi:10.2307/30040728.
[24] Htay, S. N. N., The Impact of Corporate Governance on the Voluntary Accounting Information Disclosure in Malaysian Listed Banks, Global Review of Accounting and Finance, 2012, 3, P.128-142.
[25] Ivicic, L., Kunovac, D., Lijubaj, I, Measuring Bank Insolvency Risk in CEE Countries, The Fourteenth Dubrovnik Economic Conference, Organized by Croatian National Bank, 2008.
[26] Jensen, M. C., Meckling, W. H., Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure, Journal of Financial Economics, 1976, 3(4), P.305–360, Doi: 10.1002/9780470752135.ch17.
[27] Johansen, S., Modelling of Cointegration in the Vector Autoregressive Model, Economic Modeling, 2000, 17(3), P.359-373., Doi:10.1016/S0264-9993(99)00043-7.
[28] Kao, C., Spurious Regression and Residual-based Tests for Co-integration in Panel Data, Journal of Econometrics, 1999, 90, P.1–44, Doi: 10.1016/S0304-4076(98)00023-2.
[29] Karami, R., Vaez, S.A., Rekabdar, G., The Impact of Effective Corporate Governance on the Relation-ship between Tax Gap and Future Profit Changes in Iranian Economy, Advances in mathematical finance and applications, 2020, 5(4), P. 491-505, Doi: 10.22034/amfa.2020.1895426.1388.
[30] Kargarpour, K., Khodadadi, V., Jorjorzadeh, A., Salehi, A. K., Omier, A. K., Idiosyncratic Risk and Disclosure of Corporate Social Responsibility: Emphasizing the Role of Corporate Governance, Advances in Mathematical Finance and Applications, 2021, 6(1), P.95-117, Doi: 10.22034/amfa.2020.1878505.1293.
[31] Khorshidvand, F., Sarlak, A., Examining the Relationship between Corporate Governance and the Corporate Performance Valuation, Advances in mathematical finance and applications, 2017, 2 (3), P.29-39.
[32] Lambe, I., Corporate Governance and Organizational Performance in the Nigerian Banking Industry, European Journal of Business and Management, 2014, 6(25), P.110- 118, Doi: 10.11648/j.ijefm.20160402.11.
[33] Lane, W. R., Stephen W. L., James W. W., An application of the Cox Proportional Hazards Model to bank failure, Journal of Banking and Finance, 1986, 10(4), P.511-531, Doi:10.1016/S0378-4266(86)80003-6.
[34] Lepetit, L., Strobel, F., Bank Insolvency Risk and Z_Score Measures: A Refinement, Finance Reaearch Letters, 2015, 13, P.214-224, Doi: 10.1016/j.frl.2015.01.001.
[35] Martin, D., Early Warning of Bank Failure: A Logit Regression Approach, Journal of Banking and Finance, 1977, 1(3), P.249-276, Doi:10.1016/0378-4266(77)90022-X.
[36] Mason, C., Simmons, J., Embedding Corporate Social Responsibility in Corporate Governance: A stakeholder systems approach, Journal of Business Ethics, 2014, 119, P.77-86, Doi:10.1007/s10551-012-1615-9.
[37] Nkundabanyanga, S. K., Balunywa, W., Tauringana, V., and Ntayi, J. M., Board Role Performance in Service Organizations: The Importance of Human Capital in the Context of a Developing Country, Social Responsibility Journal, 2014, 10(4), P. 646-673, Doi:10.1108/SRJ-03-2013-0038.
[38] Nicholson, G. J., Kiel, G. C., Can Directors Impact Performance? A Case Based Test of Three Theories of Corporate Governance, Corporate Governance: An International Review, 2007, 15(4), P.585-608, DOI:10.1111/j.1467-8683.2007.00590.x.
[39] Norwani, N. M., Mohamad, Z. Z., Chek, I. T., Corporate Governance Failure and Its Impact on Financial Reporting within Selected Companies, International Journal of Business and Social Science, 2001, 2(21), P.205-213.
[40] Nworji, I., D., Adebayo, O., David A. O., Corporate Governance and Bank Failure in Nigeria: Issues, Challenges, and Opportunities, Research Journal of Finance and Accounting, 2011, 2(2), P.1-19.
[41] Omankhanlen, A. E., Taiwo, N. J., Okorie, U., The Role of Corporate Governance in the Growth of Nigerian Banks, Journal of Business law and Ethics, 2013, 1(1), P.44-56.
[42] Pedroni, P., Critical Values for Co-Integration Tests in Heterogeneous Panels with Multiple Regressors, Oxford Bulletin of Economics and Statistics, Special Issue, 1999, 61, P. 653-670, Doi:10.1111/1468-0084.0610s1653.
[43] Pettway, R. H., Joseph, F., Sinkey, Jr., Establishing On-Site Bank Examination Priorities: an Early-Warning System Using Accounting and Market Information, The Journal of Finance, 1980, 35(1), P.137-150, Doi:10.1111/j.1540-6261.1980.tb03476.x.
[44] Rahman, H. U., Ibrahim, M. Y., Ahmad, A. C., Corporate Governance, Firm Financial Performance, and Shareholder’s Confidence: A Proposed Analysis of MCCG 2012, Global Business and Management Research: An International Journal, 2015,7(1), P.139-147.
[45] Samad, A., Credit Risk Determinants of Bank Failure: Evidence from Us Bank Failure, International Business Research, 2012, 5(9), Doi:10.5539/ibr.v5n9p10.
[46] Sangmi, M. D., Jan, S., Corporate Governance Policies in Indian Commercial Banks: An Empirical Analysis, IOSR Journal of Business and Management, 2014, 16(1), P.13–23, Doi: 10.9790/487X-16161323.
[47] Schaeck, K., Bank Liability Structure, FDIC Loss, and Time to Failure: A Quantile Regression Approach, Journal of Financial Services Research, 2008, 33(3), P.163-179, Doi: 10.1007/s10693-008-0028-5.
[48] Stijn V. P., Caers, R., Cind D. B., Marc J., The Governance of Nonprofit Organizations: Integrating Agency Theory with Stakeholder and Stewardship Theories, Nonprofit and Voluntary Sector Quarterly, 2012, 41(3), P.431-451, Doi: 10.1177/0899764011409757.
[49] Tabassum, A., A Comparative Review of Corporate Governance Practices within Banking Sector (Private, Public and Foreign Banks): An Empirical Review, Asian Journal of Multidisciplinary Studies, 2015, 3(8), P. 138-142.
[50] Thomson, J.B., Predicting Bank Failure in the 1980s, Economic Review (Federal Reserve Bank of Cleveland) 1991, 27, P. 7-20.
[51] Verriest, A., Gaeremynck, A., Thornton, D. B., The Impact of Corporate Governance on IFRS Adoption Choices, European Accounting Review, 20 13, 22, P.39-77, Doi:10.1080/09638180.2011.644699.
[52] Wan Yusoff, W. F., Alhaji, I.A., Corporate Governance and Firm Performance of Listed Companies in Malaysia, Trends and Development in management studies, 2012, 1(1), P. 44-64.
