The role of governance on bank liquidity creation

Violeta Díaz and Ying Huang

Journal of Banking & Finance, 2017, vol. 77, issue C, 137-156

Abstract: This paper examines the impact of internal bank governance on bank liquidity creation in the U.S. before, during and after the 2007–2009 financial crisis. Using bank holding company level data, we analyze whether better-governed banks create higher levels of liquidity. We find that this effect is positive and significant but only for large bank holding companies. Further analysis reveals that specific internal governance categories: CEO education, compensation structure, progressive practices, and ownership have a significant effect on bank liquidity. However, this positive effect occurs mostly during the crisis period, and for large banks that are also high liquidity creators. Finally, we find that the effect of governance on liquidity creation increases during the crisis period. These findings are robust even while controlling for liquidity measures, bank size, and endogeneity problems between governance and liquidity creation.

Keywords: Liquidity creation; Governance; Crisis; Bank holding companies; Compensation (search for similar items in EconPapers)
JEL-codes: G01 G21 G30 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:77:y:2017:i:c:p:137-156

DOI: 10.1016/j.jbankfin.2017.01.003

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