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Credit Booms and Busts in Emerging Markets: The Role of Bank Governance and Risk Managment

Alin Marius Andries () and Martin Brown ()
Authors registered in the RePEc Author Service: Alin Marius Andrieș ()

No 1414, Working Papers on Finance from University of St. Gallen, School of Finance

Abstract: This paper investigates to what extent risk management and corporate governance mitigate the involvement of banks in credit boom and bust cycles. Using a unique, handcollected dataset on 156 banks from Central and Eastern Europe during 2005-2012, we assess whether banks with stronger risk management and corporate governance display more moderate credit growth in the pre-crisis credit boom as well as a smaller credit contraction and fewer credit losses in the crisis period. With respect to bank governance we document that a higher share of financial experts on the supervisory board is associated with more rapid credit growth in the pre-crisis period and a larger contraction of credit in the crisis period, but not with larger credit losses. With respect to risk management we document that a strong risk committee is associated with more moderate pre-crisis credit growth but not with fewer credit losses in the crisis. We find no evidence of an organizational learning process among crisishit banks: those banks with the largest credit losses during the crisis are least likely to improve their risk management in the aftermath of the crisis

Keywords: Credit boom and busts; corporate governance; risk management (search for similar items in EconPapers)
JEL-codes: G21 G32 P34 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2014-09
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-fmk, nep-rmg and nep-tra
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