Corporate Governance and Risk Management at Unprotected Banks

Corporate Governance and Risk Management at Unprotected Banks

We examine bank governance and risk choices from the 1890s, a period without distortions from deposit insurance or other government assistance to banks. We link differences in managerial ownership to different corporate governance policies, risk, and methods of risk management. Formal corporate governance and high manager ownership are negatively correlated. Managerial salaries and self-lending are greater when managerial ownership is higher, and lower when formal governance is employed. Banks with high managerial ownership (low formal governance) target lower default risk. High managerial ownership rather than formal governance is associated with greater reliance on cash rather than equity to limit risk.

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