Corporate governance and risk management at unprotected banks: National banks in the 1890s

We examine bank governance and risk choices from the 1890s, a period without distortions from deposit insurance or other government assistance to banks. We link differences in managerial ownership to different corporate governance policies, risk, and methods of risk management. Formal corporate gove...

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Bibliographic Details
Published in:Journal of financial economics 2016-03, Vol.119 (3), p.512-532
Main Authors: Calomiris, Charles W., Carlson, Mark
Format: Article
Language:English
Subjects:
Bank failures
Corporate governance
Manager ownership
National banks
Ownership
Rent seeking
Risk management
Risk preferences
Studies
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Summary:We examine bank governance and risk choices from the 1890s, a period without distortions from deposit insurance or other government assistance to banks. We link differences in managerial ownership to different corporate governance policies, risk, and methods of risk management. Formal corporate governance and high manager ownership are negatively correlated. Managerial salaries and self-lending are greater when managerial ownership is higher and lower when formal governance is employed. Banks with high managerial ownership (low formal governance) target lower default risk. High managerial ownership, not formal governance, is associated with greater reliance on cash instead of equity to limit risk.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2016.01.025