Corporate Governance and Securitization Quality: The Impact of Shareholder Rights in the Banking Industry

• In Event: Reception with ELS and Research Interaction Forum Posters
  In Poster Session: Research Interaction Forum

Abstract

This paper investigates the influence of corporate governance on financial firms’ securitization activities. Specifically, using a sample of bank holding companies, I examine whether the level of shareholder rights affects the performance of securitized loans. I find that banks with large shareholder rights experience poor securitization quality, especially when banks offer CEOs large amounts of stock options and when banks have low capital ratios. In addition, the negative impact of shareholder rights on securitization quality is mitigated if banks provide less securitization recourse. Lastly, banks with the highest shareholder rights pre-crisis are found to suffer the worst securitization performance during the financial crisis. Overall, my findings suggest that securitization risks barely leave banks and there could be a potential negative consequence of having powerful shareholders in banks. These findings should provide insights into ongoing regulatory reform with regard to rebuilding governance mechanisms for financial institutions.

Author

• Jing Zhang, McGill University