Volume 35, Number 3, 2013
Bank Corporate Governance and Real Estate Lending During the Financial Crisis
This paper examines the effects of bank corporate governance on real estate lending and loan losses during the financial crisis. The results indicate that banks with stronger corporate governance mechanisms generally had higher profitability during the period 2006-2009. Our findings on the effects of corporate governance on real estate lending performance are mixed and depend on the definition of the crisis period. Although banks with stronger governance practices had a lower amount of real estate loan losses during 2006-2008, our results also show that these banks experienced significantly larger losses in 2009. Finally, we document that banks with weaker corporate governance decreased their higher exposure to real estate loans after the meltdown of the real estate market.