Why did a bank with good governance perform worse during the financial crisis? The views of shareholder and stakeholder orientations

Meng-Wen Wu, Chung-Hua Shen, Hsing-Hua Hsu and Po-Hao Chiu

Pacific-Basin Finance Journal, 2023, vol. 82, issue C

Abstract: Studies find that banks with good governance performed poorly during the 2007–2008 Global Financial Crisis. We examine this “good governance puzzle” by comparing the performance of banks with shareholder-orientated governance to those with stakeholder-orientated governance, where the former focuses more on shareholders' interests and the latter focuses more on non-shareholders' interests in addition to shareholders' interests. Using global bank data, we construct a stakeholder-friendly index and compare it to a shareholder-friendly index to analyze their relations with banks' profits and risks in both the crisis and pre-crisis periods. We argue that the banks under shareholder-orientated governance performed worse during the crisis period but better during the pre-crisis period, while banks under stakeholder-orientated governance behaved oppositely due to their different attitudes toward risk. Our findings confirm our argument and explain the puzzle, thus supporting the literature that shows the governance model should be sector-specific and that stakeholder-orientated governance prevented banks from having huge losses in the crisis.

Keywords: Shareholder orientation; Stakeholder orientation; Good governance puzzle; Financial crisis; Risk-taking (search for similar items in EconPapers)
JEL-codes: G01 G15 G21 G34 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927538X23001981
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:82:y:2023:i:c:s0927538x23001981

DOI: 10.1016/j.pacfin.2023.102127

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().