An Empirical Analysis of The Effect of the Corporate Governance Framework on UK Banks' Performance: 2007-2021

In the aftermath of the Global Financial Crisis of 2007/2008, UK taxpayers bailed out banks using billions of pounds. Subsequently, the government-commissioned Walker Report’s (2009) recommendations were subsequently subsumed into the UK Corporate Governance Code (2018). We collectively refer to this report and others as the corporate governance framework. The main objective of our panel data research is to examine whether the corporate governance framework has contributed to an improvement in the financial performance of UK banks, as financially stronger banks are more resilient to financial shocks/crises and are therefore less likely to require taxpayer bailouts. We commenced with a systematic literature review (SLR), emulating a four-stage SLR approach proposed by Denyer and Tranfield (2008) and adopted by Deku et al (2019). We developed our dataset and sample by first considering a list of 130 UK-based monetary financial institutions published by the Bank of England, from which we created a sample of 87 banks, equating to 1,305 total number of observations and constituting 67% of the total number of UK-domiciled financial institutions. We manually collected data for 18 corporate governance independent variables, and we collected financial data via Bankscope for 9 dependent variables, spanning 2007 to 2021. Our main findings are that the following aspects of governance in UK banks contributes to a prevention of the likelihood of future taxpayer-funded bailouts: board size, female CEOs, CEO longevity of tenure, board risk committees, long-term incentive plans, and malus and clawback policies applicable to bank executives’ remuneration contracts. Our policy recommendations are that we recommend UK banking regulators should strongly encourage UK banks to increase their board sizes to a minimum of 10 to 12 members, in accordance with the recommendations of the Walker Report (2009). UK banking regulators should also require all UK banks to significantly improve their levels of female representation on their boards of directors. UK banking regulators should make it mandatory for all UK banks to have board risk committees. UK banking regulators should make it mandatory for all UK banks to implement some form of long term incentive plan applicable to bank executive’s remuneration contracts. And finally, we recommend that UK banking regulators make it mandatory for all UK banks to fully adopt malus and clawback policies which enables banks to recoup remuneration paid or payable to bank executives in the emergence of evidence of executive malpractice. We also extend the literature on corporate governance in banks when we developed and estimated four new and original independent variables, namely; annual board evaluation; induction of incoming board directors; board risk committee separate report in banks’ annual reports; and malus and clawback policies applicable to bank executives’ remuneration contracts.

Grantor dc:publisher

Oxford Brookes University

Author dc:creator

• Johnson, Wachuku

Contributors dc:contributor

• Asteriou, Dimitrios
• Ge, Teng

Statement dc:rights

• All rights reserved

Language dc:language

en

DOI dc:identifier

https://doi.org/10.24384/a290-a909

OAI identifier oai:identifier

tle:b7f66f05-3c88-4334-a37a-2c9efbbab1da:d6bd9758-527a-46cd-bfe2-c433766e8fca:1