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

Item Type Monograph (Working Paper)
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, hand-collected 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 crisis-hit 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.

Authors Brown, Martin & Andries, Alin Marius
Language English
Keywords Credit boom and busts, corporate governance, risk management
Subjects business studies
HSG Classification contribution to scientific community
Refereed No
Date 2014
Depositing User Prof. Dr. Martin Brown
Date Deposited 25 Sep 2014 12:32
Last Modified 27 Feb 2020 01:22
URI: https://www.alexandria.unisg.ch/publications/235205

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Citation

Brown, Martin & Andries, Alin Marius: Credit Booms and Busts in Emerging Markets: The Role of Bank Governance and Risk Management. , 2014,

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https://www.alexandria.unisg.ch/id/eprint/235205
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