Accordingly, this article examines corporate governance in
banking firms. In particular, we study corporate governance
variables identified as relevant by academics and practitioners
and describe their differences and similarities vis-á-vis banking
firms and manufacturing firms. Because public information on
governance characteristics is generally available only for
publicly traded bank holding companies (BHCs), we examine
the governance of BHCs and not banks. We also discuss the
effect of regulation—such as supervisory and regulatory
requirements at the state and Office of the Comptroller of the
Currency (OCC) levels—prior to 2000 on banking firm
behavior. Many typical external governance mechanisms, such
as the threat of hostile takeovers in the industry, are absent in
the case of banking firms; therefore, we focus primarily on
internal governance structures and shareholder block
ownership. Our goal is to provide useful information and a
road map for thinking about the governance of financial
institutions, in terms of reform as well as research.
We discuss the potential benefits and costs associated with
some of the corporate governance variables for an average firm.
However, we stress that all of these variables are ultimately part
of a simultaneous system that determines the corporation’s
value and the allocation of such value among claimants. Also,
different governance mechanisms may be substitutes for one
another. For example, certain executive pay packages can vary
across firms, even in the same business environment, for good
reason. Firms with more effective boards may have more
Accordingly, this article examines corporate governance in
banking firms. In particular, we study corporate governance
variables identified as relevant by academics and practitioners
and describe their differences and similarities vis-á-vis banking
firms and manufacturing firms. Because public information on
governance characteristics is generally available only for
publicly traded bank holding companies (BHCs), we examine
the governance of BHCs and not banks. We also discuss the
effect of regulation—such as supervisory and regulatory
requirements at the state and Office of the Comptroller of the
Currency (OCC) levels—prior to 2000 on banking firm
behavior. Many typical external governance mechanisms, such
as the threat of hostile takeovers in the industry, are absent in
the case of banking firms; therefore, we focus primarily on
internal governance structures and shareholder block
ownership. Our goal is to provide useful information and a
road map for thinking about the governance of financial
institutions, in terms of reform as well as research.
We discuss the potential benefits and costs associated with
some of the corporate governance variables for an average firm.
However, we stress that all of these variables are ultimately part
of a simultaneous system that determines the corporation’s
value and the allocation of such value among claimants. Also,
different governance mechanisms may be substitutes for one
another. For example, certain executive pay packages can vary
across firms, even in the same business environment, for good
reason. Firms with more effective boards may have more
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