Edited by James R. Barth, Chen Lin and Clas Wihlborg
Frank M. Song and Li Li 1.1 BANK GOVERNANCE: SELECTED LITERATURE REVIEW Corporate governance has long been a hot topic for research (see Shleifer and Vishny, 1997; Denis and McConnell, 2003, for survey). Despite the general focus on this topic, relatively limited attention has been paid to the corporate governance of banks (e.g., Macey and O’Hara, 2003; Levine, 2004; Adams and Mehran, 2005; Caprio et al., 2007; Dahya et al., 2008). This is strange, considering the fact that corporate governance of banks is not only important but also unique (Levine, 2004). It is important to understand corporate governance of banks for several reasons. First of all, banks are themselves corporations. Sound corporate governance is essential for banks to perform efficiently. Moreover, since banks exert a strong impact on economic development (Levine, 1997, 2005), corporate governance of banks is crucial for growth and development. Banks play a central role in mobilizing social savings and channeling them to the most productive projects. Bank lending is a major source of external finance for other firms, especially in developing and emerging economies. Sound corporate governance of banks is essential for bank managers to allocate social capital efficiently and to enhance the performance of the economies. Banks also play a critical role in the corporate governance of other firms (Franks and Mayer, 2001; Santos and Rumble, 2006), as creditors of firms and, in many countries, as equity holders. Thus, it is also essential that banks themselves face sound corporate governance so that they can exert...
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