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Credit Booms and Busts in Emerging Markets: The Role of Bank Governance and Risk Managment

Author

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  • Andries, Alin Marius
  • Brown, Martin
Abstract
This paper investigates to what extent risk management and corporate governance mitigate the involvement of banks in credit boom and bust cycles. Using a unique, handcollected dataset on 156 banks from Central and Eastern Europe during 2005-2012, we assess whether banks with stronger risk management and corporate governance display more moderate credit growth in the pre-crisis credit boom as well as a smaller credit contraction and fewer credit losses in the crisis period. With respect to bank governance we document that a higher share of financial experts on the supervisory board is associated with more rapid credit growth in the pre-crisis period and a larger contraction of credit in the crisis period, but not with larger credit losses. With respect to risk management we document that a strong risk committee is associated with more moderate pre-crisis credit growth but not with fewer credit losses in the crisis. We find no evidence of an organizational learning process among crisishit banks: those banks with the largest credit losses during the crisis are least likely to improve their risk management in the aftermath of the crisis

Suggested Citation

  • Andries, Alin Marius & Brown, Martin, 2014. "Credit Booms and Busts in Emerging Markets: The Role of Bank Governance and Risk Managment," Working Papers on Finance 1414, University of St. Gallen, School of Finance.
    • Handle: RePEc:usg:sfwpfi:2014:14
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    File URL: http://ux-tauri.unisg.ch/RePEc/usg/sfwpfi/WPF-1414.pdf
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    References listed on IDEAS

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    Cited by:

    1. Andrieş, Alin Marius & Nistor, Simona, 2016. "Systemic risk, corporate governance and regulation of banks across emerging countries," Economics Letters, Elsevier, vol. 144(C), pages 59-63.
    2. Walter Gontarek & Yacine Belghitar, 2018. "Risk governance: Examining its impact upon bank performance and risk‐taking," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 27(5), pages 187-224, December.

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    More about this item

    Keywords

    Credit boom and busts; corporate governance; risk management;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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