Following the financial crisis, banking has come into the spotlight for academics, practitioners, policy-makers and particularly taxpayers. The role of banks in sustaining the sound functioning of markets and spurring economic growth is well recognized; however the recent financial crisis shows that there are issues relating to managerial pay in banking that remain unresolved. The study of agency issues in banking is of particular interest. Banks, like manufacturing firms, raise capital from financial markets and pay dividends to their shareholders. In other words, they are subject to market pressure. But in addition to this, they are also subject to regulatory pressure; this can interfere with the sound functioning of financial markets (agency and signalling mechanisms) in raising capital and paying bonuses and dividends. The extent of pressure exerted by regulators and supervisors will determine how soundly financial markets function. In addition to the acute agency issues in banking, the financial crisis (and the subsequent regulation being put into practice) provides a unique natural experiment to study these agency issues. In the former project, “Banking: Globalization, Governance and Regulation” (rated “Excellent” by the FCT panel), the team studied the following issues with respect to governance and managerial pay: (i) the pay-performance relation in banking; (ii) the relation between risk and managerial pay in the banking sector; (iii) the relation between managerial ownership and bank risk, value and performance; (iv) the relation between board diversity (measure of board independence) and bank risk and performance. Following the successful completion of the aforementioned project (our work was published by the Journal of Corporate Finance, Review of Accounting Studies and the Journal of International Money & Finance, among others), the team intends to further contribute to the literature on agency problems in banking, more specifically regarding man...

Banking is attracting significant attention from academics and policy-makers, especially in the on-going financial crisis. It is now likely to be one of the fastest growing areas of research. The role of banks in sustaining the sound functioning of contemporary markets and economic growth is well documented but the on-going crisis shows that there are still many issues that remain unresolved. Some of the unresolved issues relate mainly to multinational banking, governance and regulation. Our project intends to contribute to the closure of some important gaps in the literature. Foreign direct investment (FDI) matters significantly to banks because of the benefits of internalizing specific bank-client knowledge and general managerial, technical and marketing knowledge across borders. From a regulatory perspective it matters locally because of the influence of FDI in the functioning of local banking markets (development, supply of credit to domestic firms, mainly small and medium size) and globally because of the difficulty in supervision consequently exacerbating global systemic risk. Our project intends to shed light on three issues relating to multinational banking: (i) to what extent geographic diversification creates value to shareholders; i.e., up to what point is it optimal do engage in multinational banking activity;(ii) are banks internalizing only bank-client specific knowledge (object of the classical research agenda) or also general knowledge based on technical and managerial expertise; (iii) how multinational banks are using their internal markets across borders to reap off opportunities in local markets. One problem that is alleged to have precipitated the financial crisis is the governance of banks. The nature of banking activity creates perverse managerial incentives creating added regulatory concerns. This is another issue that the project intends to address. More specifically, the project intends to look at: (i) what is the pay-performance relation ac...

There has been much recent attention devoted to corporate governance issues, namely executive compensation (Jensen et al, 2004), corporate control (Dyck and Zingales, 2004) and hostile takeovers (Franks and Mayer, 1994). This new stream of empirical literature is well anchored on two powerful explanations of the firm’s structure and control – agency and transaction costs theories. However, there has been an excessive concentration on a specific type of institution – the manufacturing stock market quoted public corporation, usually headquartered in English speaking or “common law” countries. This research bias can be justified both by the theoretical attention given to the separation of ownership and control and by the availability of data for companies that are under the scrutiny of compulsory auditing. Recently, a new stream of research has emphasized the importance of other types of institutions, such as family firms. Anderson and Reed (2003) have even obtained the counter intuitive finding that American family firms have systematically outperformed publicly owned peers. La Porta et al (1999) have underlined the need for a better understanding of corporate ownership across the world. One third neglect of current research regards the study of intermediary management levels, as stressed by Ortin-Angel and Salas-Fumas (1998). This research project attempts at contributing to fill the previous gaps found in the empirical literature in corporate governance. The Portuguese case, as a non Anglo-Saxon, medium income economy, with a predominance of family owned firms and the services sector is an interesting research case with a potential for extrapolation into related economies. The comparison with the Anglo-Saxon countries will not be neglected either. The work should include the following four subtopics: Executive compensation in Portuguese firms. We plan to study the implication of firm specific variables such as size, age, ownership or nationality and exec...