الملخص الإنجليزي
Abstract:
This paper reiterates the importance of corporate governance in banks. Failure prediction studies have mainly relied on using fnancial ratios as predictors. The most suitable fnancial predictors for banks are fnancial ratios following the CAMEL rating system. Also, corporate governance has been proven to be an important aspect of banks, especially after the fnancial crisis. Given its importance, the novelty of this paper is to test the ability of corporate governance to increase the accuracy and extend the time-horizon of bank failure prediction in the US market. Using discriminant analysis, we predict the failure of banks
insured by the Federal Deposit Insurance Corporation from 2010 to 2018. Using fnancial and non-fnancial predictors, we fnd that combining CAMEL ratios with corporate governance variables not only increases the accuracy of prediction but also extends the time horizon to three years before failure. We also show that bank earnings is a more signifcant predictor than capital structure and asset quality. The results further reveal that CEO compensation, voting rights and institutional ownership are signifcant predictors. These results are robust when using logit regression and out-of-sample examination. This study shows
that corporate governance plays a key role in the success or failure of banks. The regulatory implication of this paper is that more attention needs to be directed to corporate governance and earnings aspects of banks rather than focusing on capital structure.
