This paper advances the studies of [Hughes, J.P., Lang W.W., Mester L.J., Moon C.G., Pagano M.S., 2003. Do bankers sacrifice value to build empires? Managerial incentives, industry consolidation, and financial performance. Journal of Banking and Finance 27, 417–447] by developing a new measure of bank performance which we refer to as “shareholder value efficiency” – a bank producing the maximum possible Economic Value Added (EVA), given particular inputs and outputs, is defined as “shareholder value efficient”. This new efficiency measure is estimated using the stochastic frontier method focussing on the French, German, Italian and UK banking systems over the period 1997–2002 and includes both listed and non-listed banks. We find that European banks are, on average, 36% shareholder value inefficient. Shareholder value efficiency is found to be the most important factor explaining value creation in European banking, whereas cost and profit efficiency only have a marginal influence.

We evaluate the impact of commonly used indicators of bank distress on broad (i.e. sector and country) risks. This issue deserves special attention in the banking industry where there is a strong degree of interconnectedness among institutions and the default of a single bank may cause a cascading failure, which could potentially bankrupt the entire system. Using several measures of individual bank risk our results show that these measures have a direct impact on European banking (i.e. systemic) stock market risk. We also provide strong evidence suggesting that, for listed banks, default risk tends to be systematic (i.e. non-diversifiable).

What types of policy intervention had a greater impact during the financial crisis? By using a detailed dataset of worldwide policy, we answer this question focusing on Global Systemically Important banks (G-SIBs), looking both to stock returns and Credit Default Swap (CDS) spreads reactions. As robustness checks, we also analyze a control sample of 31 large Non-Financial Companies (NFCs). Overall, we show that different policy interventions from governments and central banks have produced diverse market reactions: investors generally appreciate monetary policy interventions for G-SIBs (but not for NFCs) and do not welcome bank failures and bailouts (for both G-SIBs and NCFs).

Euro area countries have recently moved to a new centralized bail-in framework by removing implicit public guarantees. Our paper analyzes banks' funding strategies after the bail-in proposal. We show that Euro area banks relied more on cheaper and better protected sources of funding, such as deposits, and reduced fund collection from sources with weaker creditor protection, such as bonds.

We study the effect of corporate culture on the relationship between firm performance and CEO turnover. Utilising a measure of cultural dimension developed in organisation behaviour research, we quantify corporate culture by assessing official documents using a text analysis approach. We employ this quantification to examine the impact of culture on CEO turnover, especially in the case of poor firm-specific performance. First, we find strong evidence of a negative relationship between firm-specific performance and CEO turnover. Second, we demonstrate that the probability of a CEO change, on average, is positively influenced by the competition- and creation-oriented cultures. The negative relationship between firm-specific performance and CEO turnover is reinforced by the control-oriented culture and reduced by the creation-oriented culture. Finally, we study the CEO insider or outsider succession and observe that the creation-oriented culture has a negative relationship with the probability of hiring an outsider. Moreover, the creation-oriented culture weakens the negative relationship existing between the firm-specific performance under the incumbent CEO and the probability of hiring an outsider.

In this paper we examine the impact of a large number of factors at the bank level (liquidity and credit risks, asset size, income diversification and market power), at the industry level (banking concentration) and macro-level (real GDP growth) on bank financial distress using an unbalanced panel of 308 European commercial banks between 1996 and 2009. The observations falling below a given threshold of the empirical distribution of the Shareholder Value Ratio proxy bank financial distress. We employ a panel probit regression and, given the presence of overlapping data giving rise to residual autocorrelation, we use the Bertschek and Lechner (1998) robust estimator of the covariance matrix of parameters. We show that credit risk, liquidity risk and bank market power are the most influential determinants of distressed Shareholder Value Ratio. Finally we evaluate the model out-sample forecasting performance over the 2008–2009 crisis period.

This paper examines the determinants of shareholder value creation for a large sample of European banks between 1998 and 2005. As the recent turmoil in global banking systems has illustrated, bank performance can have a substantial influence on efficient capital allocation, company growth and economic development. We use a dynamic panel data model where the bank’s shareholder value is a linear function of various bank-specific, industry-specific and macroeconomic variables. We show that shareholder value has a positive relationship with cost efficiency changes, while economic profits are linked to revenue efficiency changes. Credit losses, market and liquidity risk and leverage are also found to substantially influence bank performance. These results are robust to a variety of different model specifications.

Contingent convertibles (CoCos) are intended to either convert to new equity or be written down prior to failure while a bank is a going-concern. Yet, in the first actual test case, CoCos never converted before its bank failed. We develop a model that predicts that CoCos lead to less (more) extreme stock returns and have yields greater than (similar to) standard subordinated debt yields if investors do (do not) expect them to convert or be written down prior to failure. These predictions are tested using data on CoCos issued by European banks during 2011 to 2017. We find evidence that equity conversion CoCos reduce stock return variance and several other measures of downside risk, consistent with the perception that they are going-concern capital. However, we also provide event study evidence that recent regulatory actions reduced the CoCo–subordinated debt yield spread, which indicates a diminished investor belief that CoCos are going-concern capital.

Since 2007, monetary authorities around the globe have reduced their key policy interest rates to unprecedented low levels and intervened with non-standard policy measures (i.e., monetary easing and liquidity provision) to support funding conditions for banks, enhance lending to the private sector and contain contagion in financial markets (e.g., European Central Bank, 2011). Using a detailed dataset of monetary policy interventions between June 2007 and June 2012 in the most advanced monetary areas (the Euro area, Japan, the U.S., the UK and Switzerland), we analyze their effects at three different levels, including (1) the interbank credit market, considering the 3-month LIBOR-OIS spread as a measure of financial distress (e.g., Taylor and Williams, 2009); (2) the stock market, represented by wide equity indices; and (3) the banking sector, focusing on global systematically important financial institutions (G-SIFIs). We demonstrate that different monetary policy interventions from single central banks have produced a diverse market reaction. Standard measures have been more effective than non-conventional ones in restoring the interbank market, which is fundamental for maintaining a fully operational traditional interest rate channel and for guaranteeing the normal functioning of financial intermediation. Non-traditional measures have registered a stronger stock market reaction with respect to standard interest rate decisions, both in terms of broad equity indices and single prices of large banks.