Corporate Governance and Access to Finance - ESBG

The paper examines whether a poor economic performance triggersinternal or external governance interventions (e.g., director turnover,chairman or CEO removal or mergers and takeovers) and find that savingsbanks exhibit weaker internal mechanisms of control than commercialbanks and that the only significant relation between performance andgovernance intervention at savings banks is found in case of mergers.The variables used in these governance practices include the following:the types of owners/stakeholders governing the bank and their relevance;the relevance of state institutions in the board or their influence in thebank decision process; the accountability of managers and directors;the existence of nominating committees; the executives dismissalpractices, especially in case of poor performance; the transparency on thedirectors remuneration and the transparency in reporting commercialactivities among directors, relatives and the bank. Also for Spanishsavings banks, Cuñat and Garicano (2009) conclude that those whosechairman was previously a political appointee, did not have postgraduateeducation and/or no banking experience had significantly worseloan performance (higher bad loans).Another strand of literature relevant for this report is related to how tomeasure Access to Finance. Perotti and Claessens (2007) differentiate inthis regard between access and usage of financial services. Access is theavailability of financial services at a “reasonable cost” and usage concernsthe actual consumption of services. Although their focus is on the effectof barriers erected by insiders based on the inequality distribution ofpolitical influence, our goal is to link the diverse sets of CorporateGovernance practices in banking institutions to the access and usage offinancial services. An empirical paper by Beck et al (2007) measuresfinancial sector outreach focusing on the “access to” and “use of”banking services across countries. Their measure of outreach of thefinancial sector in terms of access to banks’ physical outlets is based onthe following indicators:1. Geographic branch penetration: number of bank branches per 1,000 km 2 .2. Demographic branch penetration: number of bank branches per100,000 people.3. Geographic ATM penetration: number of bank ATMs per 1,000 km 2 .4. Demographic ATM penetration: number of bank ATMs per 100,000people.109