Essays on corporate governance of financial institutions in the United States

Aljalahma, N

Abstract

Despite the importance of corporate governance in financial institutions, it remains an under researched area. Thus, this research includes three studies that examine the significant characteristics of corporate governance for financial institutions.
The first study examines the effect of corporate governance on risk taking. Previous studies have used indices, but the validity of using an index to show the complex effects of different characteristics is questioned. Thus, this study examines the effect of various corporate governance characteristics on several risk measurements using Principal Component Analysis and Structural Equation Modelling. The findings show that while corporate governance as a whole has a positive effect on risk, there are certain variables including board characteristics that have a negative effect.
The second study predicts the failure of banks using corporate governance variables and CAMEL ratios. Previous studies have used financial ratios without the utilization of corporate governance as non-financial ratios. Using discriminant analysis and logit regression, this study shows that combining these ratios and variables not only enhances the accuracy of prediction but also extends the time horizon of prediction to three years before failure. The results also show that the earnings of banks are the most significant aspects of the CAMEL ratios.
The first two studies show that institutional ownership is a significant characteristic. Thus, the third study examines the effect of institutional ownership on the Governance Quality Score developed by the Institutional Shareholders Services. Using a two-steps system Generalized Methods of Moments, this study shows that institutional ownership has a negative effect on corporate governance, but the change of ownership has a positive effect. To investigate this matter, the study includes both graphs and additional analysis in which the governance score is divided into high and low scores. The results show that institutional ownership has a U-shaped effect on corporate governance.

Citation

Aljalahma, N. Essays on corporate governance of financial institutions in the United States. (Thesis). University of Salford

• Thesis Type: Thesis
• Deposit Date: Oct 5, 2022
• Award Date: Mar 9, 2022