Three essays in banking and finance: the effects of the post- global financial crisis prudential regulation on lending, corporate governance practices and shareholder value – evidence from U.S.

Abstract

The goal of this thesis is to investigate the effect of structural changes in the financial environment, which emerged following the Global Financial Crisis, on bank performance. The financial environment has significantly transformed in the post crisis periodnew global regulatory policies have emerged with the purpose of attaining greater world-wide financial stability. These policies have included new macro-prudential tools of selective mandatory capital adequacy disclosures, constraints on bankers' compensation, etc. As a result, an interest in the seminal theoretical works of Grossman (1981), Kyle (1985) and Diamond and Verrecchia (1991) has been rekindled to learn about the informational and broader performance effects of disclosures. The effects of these new tools are apriori ambiguous. New factors can either increase systemic financial stability, or they can bring adverse effects via increased systemic volatility (Tarullo (2010)). In this study, I investigate three key hypotheses. The first hypothesis focuses on the impact of mandatory capital adequacy disclosure on lending. The second hypothesis focuses on the impact of voluntary capital adequacy disclosure on lending. The third hypothesis focuses on the effects of bank-level performance on bankers' compensation. I test these three key hypotheses as well as broader effects with an application of the U.S. financial sector data. I combine empirical strategies of treatment methods (difference-indifference tests, regression discontinuity, matched pairs, etc.) to test my hypotheses. I find that the new regulation had: (a) an adverse effect on lending of the mandatory disclosing banks during the post-disclosure year, (b) fostered voluntary disclosures, that had a positive effect on lending of the voluntary disclosing banks, (c) brought enhancement to the remuneration practices in banks to align them with the shareholders' value and, ultimately, enable implementation of greater financial stability.In particular, in the first study, I contribute to the literature on the real effects of macro-prudential regulation by investigating the (new) link between a mandatory-type of capital adequacy disclosure and bank intermediation. The mandatory disclosure stems from the U.S. Federal Reserve regulation change introduced in 2013 in a harmonized unified framework that applies to top-tier banks with $50 iii billion or more in total assets and leads to the identification of bank intermediation effects using treatment methods. A combined empirical strategy of DiD and regression discontinuity design (RDD) point to the economically significant evidence for the average reduction of both lending growth and deposit growth for banks that disclose their capital adequacy as prescribed by the regulation. This reduction in growth is complemented by profitability and employment effects.In the second study, using a sample relating to the voluntary disclosure by banks in the U.S. in 2014, I show that those banks that provide information on their capital adequacy in excess of the regulator...