Is Corporate Governance Different in Financial Firms than in Non-Financial Firms? Evidence for the Pre- and Post-Crisis Period in Europe

Abstract

The financial crisis revealed the lack of effectiveness of corporate governance (CG) principles in the financial services sector. During recent years, several aspects of corporate governance have been subject to hard law regulation in the European Union for the benefit of shareholders, such as remuneration (Directive 2010/76/EU), shareholder rights (Directive 2007/36/EC) and transparency/nonfinancial information disclosure (Directive 2014/95/EU). However, some questions remain unanswered. Are governance structures the same in financial and non-financial firms? Are the same CG recommendations applicable to both sectors? Has the crisis changed the way financial and non-financial firms are governed? Without a deep knowledge of these issues, governance policies cannot be fully developed. This paper considers the differences in CG across Europe, analysing 33 variables that measure policies related to corporate governance, including the areas of board structure and functioning, committees, compensation policy, anti-takeover devices, shareholder rights and Corporate Social Responsibility. Our analysis focuses on a sample of 206 enterprises that belong to the main stock market indexes of Spain (IBEX 35), France (DAX), Germany (CAC-40) and the United Kingdom (FTSE-100), dividing the sample into financial and non-financial firms and considering the pre- and postcrisis period. The results show sector-based differences in CG in six variables in 2007 and in eight variables in 2013 for the full sample. Therefore, financial firms were not worse governed than non-financial firms before the crisis, and since the crisis financial firms have also been similarly governed to non-financial firms. The crisis has affected almost half of the CG variables analysed in financial firms. There were also country-based differences in CG in 19 variables in financial firms. These differences between countries show the difficulty in developing common governance recommendations for all European countries without considering their own specific characteristics.