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Do board characteristics and ownership structure matter for bank non-performing loans? Empirical evidence from US commercial banks

Ameni Tarchouna (), Bilel Jarraya and Abdelfettah Bouri
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Ameni Tarchouna: Sfax University
Bilel Jarraya: Qassim University
Abdelfettah Bouri: Sfax University

Journal of Management & Governance, 2022, vol. 26, issue 2, No 7, 479-518

Abstract: Abstract This paper aims to study the ability of the corporate governance of banks to reduce non-performing loans. The dynamic panel GMM estimation is applied to 184 US commercial banks over 2000–2013 period. Given that bank-size groups have different risk profiles, the full sample of US banks is divided into three asset-size classes. For every asset-size group of banks, we successively integrate five corporate governance variables in addition to the bank-specific and macroeconomic variables in separate regressions. The central finding of this research is that small banks are characterized by a weak and fragile corporate governance system which leads to a bad loan quality. This result can be explained by small banks’ reliance on personal connections. Concerning medium banks, we notice a sound corporate governance system. As far as large banks are concerned, it is to mention that the corporate governance system of these banks is neutralized. On account of the high level of liquidity, large banks are engaged in excessive lending practices without taking notice of the undue losses. This paper notably contributes to the financial literature via empirically proving that the effect of banks’ corporate governance on their loan quality depends on bank size.

Keywords: Non-performing loans; Bank corporate governance; Board characteristics; Ownership structure; Bank size; GMM dynamic panel data estimator (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10997-020-09558-2

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