35 Years of Literature on Corporate Governance in Banks: Risk Management, Ownership and Compensation

This paper provides a systematic literature review on the literature on corporate governance in banks. The review is conducted over academic papers published in the period 1980-2015, identifying 35 years of evolution in the core aspects of banking corporate governance: risk management, ownership structure and executive compensation of banks. Best practices for increasing performance and reducing risk in banks are commented, when identified. Gaps in the literature and lack of univocal consensus on the different implementation of corporate governance in the selected topic are also identified.


INTRODUCTION
In this paper we review the academic publications on corporate governance (CG) of banks, published from 1980 to 2015. A systematic literature review to identify the prevalent theories in the academic literature and the evolution of the core aspects of CG in banks. We select papers focused on three core CG topics: risk management; ownership structure and executive compensation 1 . Indeed, since banks are in the "Corporate Governance: Search for the Advanced Practices" Rome, February 28, 2019 business of taking risks, risk management function has received increasing attention from both academic and policy makers perspective, especially in the aftermath of the financial turmoil (Brogi & Lagasio, 2018). Ownership structure is also widely researched topic in banking Corporate Governance literature (Shleifer & Vishny, 1986). From a firm's perspective, it was initially inspected by Berle and Means (1932) and lately by Fama and Jensen, (1983b). From a banking perspective, one of the first papers published on these topics was Glassman and Rhoades (1980) that in line with the well-known agency theory framework (Jensen & Meckling, 1976) propose a situation of concentrated ownership as a governance mechanism that may reduce agency conflicts and costs (Shleifer & Vishny, 1997 Chaigneau, 2013). This topic is also being investigated especially following the financial crisis, with the aim of providing a more long-term-oriented awareness in reducing excessive risk-taking behavior by executives. We try to provide a complete overview of the relevant aspects of CG in banks, as identified by previous researches on this topic. In particular, we focus in clarifying the understanding of the relationship between CG and both performance and risk in banks. The reminder of the paper is organized as follows: section 2 explains the procedure of the systematic literature review and the sample composition; section 3 shows the results of the review, based on the three selected area of CG; section 4 concludes by outlining the prevailing theories and suggesting for further investigation in this area of research.

METHODOLOGY
The systematic literature review is performed with a specific procedure, composed of different steps: (i) selection of the publication databases 2 ; (ii) restrict the selection to only papers published in journals 3 with a peer "Corporate Governance: Search for the Advanced Practices" Rome, February 28, 2019 reviewed evaluation process up to 2015; (iii) perform an advanced search with the inclusion of the keywords "Corporate Governance" and "banks" or "financial institutions"; (iv) read all the abstracts to ensure that the contents are related with the investigated CG topics (e.g. risk management, ownership structure and executive compensation); (v) consolidate results. We obtain a sample of 97 papers on the selected topics, most of which are focused on risks potentially faced by banks and their performance capability in relation with specific CG practices. The first paper included in the sample is Glassman and Rhoades (1980) that explore the ownership structure of banks and its impact on risk performance, thus leading to a 35 years of investigation of academic literature on CG in banks.

Risk Management
The

Ownership structure
Most of the papers related to ownership structure may be classified in two different strands of literature: from a "quantitative" point of view (e.g. ownership concentration), and a "qualitative" point of view (e.g. owners' type). Concerning the first dimension, the prevailing finding is that concentrated ownership helps in better monitoring function, leading to a reduction of risk and improvement of performance (

Compensation
The mainstream literature on corporate governance is based on agency theory (Fama & Jensen, 1983b). As concerns compensation (and in particular its variable part), the agency theory suggests that it may be considered as a mechanism to align managers' and shareholders' interests (Berle & Means, 1932 5 . This is the reason why both principle setter and regulators identify it as a critical issue in banks' soundness and stability. In particular, it should include procedures to avoid conflicts of interest and should also encourages employees to act in the interest of the company as a whole. Moreover, incentives embedded within remuneration structures should not promote excessive risk-taking (BCBS, 2015).

CONCLUSION
The understanding of the fundamentals of bank Corporate Governance such as risk management, ownership structure and compensation is increasing rapidly in the last 35 years. We run a systematic literature of the papers focused on the selected topic to identify the prevailing academic results and the possible best practices to adopt for increasing performance and reducing risk in banks. The review is conducted over academic papers published in the period 1980-2015, leading to a sample of 97 papers focused on risk management, ownership structure and compensation of banking institutions. Indeed, from a methodology point of view, further criteria may be adopted when selecting the sample of papers (i.e. including also books) to rely on a more complete sample of academic researches and published theories (Lagasio & Cucari, 2018). Further investigations may also be conducted to verify the the crosscountry differences in the relation between corporate governance and both performance and risk in banking.