Corporate governance and bank profitability: Evidence from the U.S.

Abstract

This paper examines the effect of corporate governance on bank profitability using a panel of U.S. banks over the period 1990-2009. We measure corporate governance usingthe G-index developed by Gompers, Ishii, and Metrick (2003), and the E-index developed by Bebchuk, Cohen, and Ferrell (2009). We specify a dynamic model that allows for persistence in bank profitability, and estimate the model using the system GMM estimator. Overall, we find no evidence that corporate governance is related to bank profitability.In contrast, we find strong evidence that operation efficiency and credit risk affectbank profitability.