||Do Financial Institutions Learn from Financial Crisis?Evidence from Risk Management
||Department of Accountancy
Previous studies have discussed the association between corporate governance
and firm performance. Most of them have shown positive relationship, but some did
not. This study first examines whether financial institutions that suffered great
losses during financial crisis, changed their risk governance mechanisms. Secondly,
I examine whether the improvement in risk governance mechanism has an impact
on stock-price performance of the financial institutions. Results have shown that
financial institutions that suffered great losses during the financial crisis, implement
a risk governance changes and this improvement in risk governance mechanism
could lead to superior buy-and-hold abnormal returns. The results indicate that the
market appear to value the change in risk governance mechanisms.
Table of Contents
1. Introduction 1
2. Literature Review 3
3. Sample Selection 6
4. Research design and empirical results 8
5. Summary and Conclusions 16
6. List of Tables and Figures 18
Table 1 - A: Financial institution in Bank Regulatory Database 18
Table 1 - B: Distribution of Financial Institutions by SIC Code 18
Table 1 - C: Distribution of institution that suffered more and less 18
Table 1 - D: Distribution of institutions that that suffered more and less by SIC codes 19
Figure 1 - Governance Variables for Financial Institution Suffered Great Loss Firm in the Year Prior to Crisis (Initial) and the Four-Year Afterward (Final) (Sample Size = Initial/Final) 20
Panel A: Means of Governance Variables in Percentages 20
Panel B: Means of Governance Variables in Levels 20
Table 2 - Univariate Comparisons of Board of Directors, Risk Governance, and other Corporate Governance Variables 21
Table 3 - Univariate Comparisons of Board of Directors, Risk Governance, and other Corporate Governance Variables (Risk Governance the same throughout the period) 23
Table 4 - Descriptive Statistics and Pearson Pairwise Correlations for Returns, Change in Net Income, Governance Changes and Control Variables for Financial Institutions that suffered great losses for the Fourth-Year Period following Financial Crisis 27
Panel A: Descriptive Statistics of Returns, Governance Variables, and Control Variables (n=21) 27
Panel B: Pearson Pairwise Correlation for Returns, Changes in Net Income, Governance Changes and Control Variables (n=21) 27
Table 5 - Regression of Great Loss Firm’s Long-Run Buy-and-hold Abnormal Returns for the Four-Year after Financial Crisis on governance chances from the Year Prior to Financial Crisis to the Fourth Year Afterward 28
Panel A – Total Sample (Financial Institution that suffered great and less losses) 28
Panel B – Financial Institutions that suffered less losses 29
Panel C – Financial Institutions that suffered great losses 30
7. Reference 31
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