Corporate Governance and Dividend Policy in European Banking

This dissertation investigates corporate governance and dividend policy in banking. This topic has recently attracted the attention of numerous scholars all over the world and currently remains one of the most discussed topics in Banking. The core of the dissertation is constituted by three papers. The first paper generalizes the main achievements in the field of relevant study using the approach of meta-analysis. The second paper provides an empirical analysis of the effect of banking corporate governance on dividend payout. Finally, the third paper investigates empirically the effect of government bailout during 2007-2010 on corporate governance and dividend policy of banks. The dissertation uses a new hand-collected data set with information on corporate governance, ownership structure and compensation structure for a sample of listed banks from 15 European countries for the period 2005-2010. The empirical papers employ such econometric approaches as Within-Group model, difference-in-difference technique, and propensity score matching method based on the Nearest Neighbor Matching estimator. The main empirical results may be summarized as follows. First, we provide evidence that CEO power and connection to government are associated with lower dividend payout ratios. This result supports the view that banking regulators are prevalently concerned about the safety of the bank, and powerful bank CEOs can afford to distribute low payout ratios, at the expense of minority shareholders. Next, we find that government bailout during 2007-2010 changes the banks’ ownership structure and helps to keep lending by bailed bank at the pre-crisis level. Finally, we provide robust evidence for increased control over the banks that receive government money. These findings show the important role of government when overcoming the consequences of the banking crisis, and high quality of governance of public bailouts in European countries.

Real effects of the IFRS 9 adoption in banking

The recent adoption of IFRS 9 is a highly disruptive accounting reform, with significant impacts on how and when negative news (i.e., negative adjustments to reported earnings) are recognized on the financial statements. Using a unique dataset of two major banks operating in one European country we provide evidence of a tightening of the corporate loans pricing after the IFRS 9 adoption. Furthermore, by focusing on the post reform period, we show that the tightening is driven by the new staging classification. Higher risk premiums are associated to clients with previous underperforming exposures (stage 2) and higher probability of default. We also observe that the staging classification is not affecting climate risk premiums. Our results highlight that the lenders, as expected by the regulation, change their risk appetite by charging higher spreads to discourage loan origination for clients that became too risky and expensive under the new standard.