Governance impacts on US bank policy
Banks sit at the core of the financial system by performing key functions including liquidity creation, risk diversification, financing of real economy and transmission of monetary policy. The global financial crisis and accompanying bank failures re-kindled the discussion on the proper management of financial intermediaries. When performing strategic roles, banks interact with a long list of stakeholders, such as depositors, borrowers, creditors, employees, broader society and regulators.
Against this backdrop, Dr Muhammed Hasan Yılmaz's doctoral research presents new empirical evidence regarding the impact of internal and external governance characteristics on bank policies from the perspective of stakeholders in the context of the US banking industry. In order to establish causal inference, the work employs, across the three empirical studies which form the backbone of his thesis, two exogenous shocks derived from regulatory changes.
First, Dr Yılmaz's thesis uses the enactment of constituency statutes to proxy for the concept of stakeholder orientation. Constituency statutes are amendments to existing codes of incorporation across individual states, which were enacted over the period from the 1980s to 2000s. Second, his thesis utilises – to proxy a change in the regulatory environment – the enactment of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, which revised the threshold of implementing enhanced prudential regulation of larger banks from $50 to $250 billion.
Key findings included:
- Extending fiduciary duties to other stakeholders results in decreased total payout of top-tier bank holding companies.
- Adopting a stakeholder-centric managerial approach leads to decreased discretionary loan loss provisions, thus improving financial reporting quality of commercial banks.
- Lowering the degree of regulatory oversight increases risk exposure of large bank holding companies.
Two chapters of Dr Yılmaz's thesis have been published, in the prestigious journals British Journal of Management and Journal of Financial Stability.
Dr Yılmaz submitted his thesis in June 2023 and had an in-person viva in July 2023, examined by Professor Jens Hagendorff from King's College London and School of Management's Dr Mao Zhang. He was co-supervised by Professor John Wilson and Professor Dimitris Chronopoulos.
Dr Yılmaz is currently working as Associate Economist at Central Bank of the Republic of Türkiye.
