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Volume 70, Issue 1

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European Banks’ Legal Provisions and Financial Crises: The Influence of Corporate Governance and Institutional Environment

Gallud Cano, Jorge; Lopez-de-Foronda Perrez, Oscar; Lopez-Iturriaga, Felix J.

Year: 2020   Volume: 70   Issue: 1   Pages: 70-93

Abstract: We study the legal provisions of 92 European systemic banks from 18 countries over the years 2008-2017. Since legal provisions may be viewed as a mechanism for disclosing information to capital markets, the creation of legal provisions is determined by the risk taken by the bank and the managerial incentives to disclose information. Our results show an initial negative relationship between managers’ discretionary investments and legal provisions, even when we control for risk taking. We also find that board of director independence has a moderating effect in order to guard against future lawsuits. Similarly, a better institutional framework amplifies the positive influence of the board of directors.

JEL classification: G32, G38

Keywords: legal provisions, risk, corporate governance, institutional framework, European banks

RePEc: xxx

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