Essays on the Relationship between Corporate Governance Mechanisms and Risk-Taking by Financial Institutions

This dissertation is comprised of four related empirical essays on corporate governance in financial institutions. Specifically, each essay focuses on slightly different aspects of corporate governance and risk-taking by financial institutions. The first essay examines the relationship between corporate governance and the systemic risk of financial institutions. Empirical findings indicate that financial institutions with stronger and more shareholder-focused corporate governance structures and boards of directors are associated with higher levels of systemic risk. The second essay investigates whether corporate governance is related to insolvency risk of financial institutions. The essay finds that the strength of corporate governance mechanisms is positively related to insolvency risk of financial institutions as proxied by Merton’s distance-to-default measure and credit default swap spread. The third essay examines whether the systemic risk of financial institutions is associated with the risk-taking incentives generated by executive compensation. This essay documents a negative association between systemic risk and the risk-taking incentives of the top executives. However, the results also demonstrate that financial institutions with greater managerial risk-taking incentives had higher levels of systemic risk in the midst of the global financial crisis in 2008. The fourth essay investigates the relationship between Chief Executive Officer (CEO) pay-share (pay inequality between the CEO and the other top executives) and risk-taking in large bank holding companies (BHCs). This essay finds that higher CEO pay-share is associated with lower BHC risk.Tämä väitöskirja koostuu neljästä esseestä, jotka käsittelevät eri näkökulmista hallinto- ja ohjausjärjestelmien vaikutusta pankkien ja muiden rahoituslaitosten riskisyyteen. Väitöskirjan kahdessa ensimmäisessä esseessä tarkastellaan hallinto- ja valvontakäytäntöjen vaikutusta yhdysvaltalaisten rahoituslaitosten riskinottoon. Ensimmäisessä esseessä tutkitaan rahoituslaitosten hallintojärjestelmien vahvuuden ja systeemiriskin suhdetta. Tulokset osoittavat, että omistajalähtöiset hallintojärjestelmät ja omistajaystävälliset hallitukset lisäävät rahoituslaitosten systeemiriskiä. Toisessa esseessä selvitetään hallintojärjestelmien vaikutusta rahoituslaitosten maksukyvyttömyysriskiin. Tutkimuksessa todetaan, että omistajalähtöiset hallintojärjestelmät kasvattavat rahoituslaitosten maksukyvyttömyysriskiä sekä distance-to-default -indikaattorilla että luottoriski-johdannaisten hinnoista mitattuna. Kolmas ja neljäs essee tarkastelevat ylimmän johdon palkitsemisjärjestelmien ja erityisesti riskinottokannustimien suhdetta pankkien ja muiden rahoituslaitosten riskisyyteen. Kolmannen esseen tulokset osoittavat, että ylimmän johdon optio-perusteisilla riskinottokannustimilla on negatiivinen vaikutus rahoituslaitosten systeemiriskiin. Toisaalta tulokset myös osoittavat, että johdon riskinottokannustimet lisäsivät rahoituslaitosten riskisyyttä rahoitusmarkkinakriisin aikana vuonna 2008. Neljännessä esseessä verrataan toimitusjohtajan kokonaispalkkaa suhteessa muihin ylimpiin johtajiin ja tutkitaan tämän palkitsemiseriarvoisuuden vaikutusta yhdysvaltalaisten pankkien riskisyyteen. Tutkimustulokset osoittavat, että toimitusjohtajan ja muun ylimmän johdon palkkaeron kutistuminen kasvattaa pankkien riskisyyttä.fi=vertaisarvioitu|en=peerReviewed

Managerial risk-taking incentives and the systemic risk of financial institutions

This paper examines whether the systemic risk of financial institutions is associated with the risk-taking incentives generated by executive compensation. We measure managerial risk-taking incentives with the sensitivities of chief executive officer (CEO) and chief financial officer (CFO) compensation to changes in stock prices (pay-performance sensitivity) and stock return volatility (pay-risk sensitivity). Using data on large U.S. financial institutions over the period 2005–2010, we document a negative association between systemic risk and the sensitivities of CEO and CFO compensation to stock return volatility. However, our results also demonstrate that financial institutions with greater managerial risk-taking incentives were associated with significantly higher levels of systemic risk during the peak of the financial crisis in 2008. We further document that the relation between pay-performance sensitivity and systemic risk is essentially nonexistent. Overall, our empirical findings indicate that the association between managerial risk-taking incentives and banks’ systemic risk is ambiguous and is not stable over time.fi=vertaisarvioitu|en=peerReviewed

Corporate Governance and the Insolvency Risk of Financial Institutions

We investigate whether corporate governance is related to insolvency risk of financial institutions. Using a large sample of U.S. financial institutions over the 2005-2010 period, we find that corporate governance is positively related with insolvency risk of financial institutions as proxied by Merton\u27s distance to default measure and credit default swap spread. We also find that better corporate governance increased insolvency risk relatively more for larger financial institutions and during the period of the global financial crisis. Our findings suggest that too-big-to fail and deposit insurance policies encourage excessive risk taking by financial institutions

Hardware realization and PID control of multi-degree of freedom articulated robotic arm

A robotic manipulator is the most important component in an industrial environment for autonomous execution of tasks. Given the repoted fact that a PID (Proportional-Integral-Derivative) will continue to be the main workhorse in the automation sector, the present paper deals with designing and realizing this control law. A custom-developed pseudo-industrial platform AUTAREP (AUTonomous Articulated Robotic Educational Platform) centered on a 6DOF (Six Degree of Freedom) manipulator is considered. The derived kinematic and dynamic models of the arm form the basis of MATLAB-based control simulation. The control law after discretization is also implemented on embedded hardware. When subject to various inputs, result of trajectory tracking in the form of output responses, demonstrate superior performance in transient as well as steady state. The stability and convergent behavior of the outputs is also observed, thus highlighting efficacy of proposed approach

Embedded control system for autarep - a novel autonomous articulated robotic educational platform

This research introduces an open-source framework, AUTonomous Articulated Robotic Educational Platform (AUTAREP). The platform is centred on a 6 Degree Of Freedom (DOF) arm with multiple feedbacks to ensure precision and autonomy. The sensory system consists of vision, position and force feedbacks while the actuation system comprises six precise DC servo motors. In particular, this paper presents the design of an embedded controller for AUTAREP. The proposed design of the control hardware and software interface has been tailored as per academic requirements of relevant undergraduate and postgraduate courses. Low level commands have been provided to permit readily development of applications for trainees. Advanced users can further exploit the open-source architecture of the platform. The performance of the proposed control system has been demonstrated by various experiments on the fabricated hardware. The control has been subjected to various test inputs to analyse its transient and steady state behaviour. The robot has been tested to achieve a set-point position successfully and the encoder data corresponding to all the joints has been recorded. Finally, a common application of "pick and place" has been implemented. The proposed platform is potentially beneficial in teaching engineering courses, training in industrial sector and research of advanced algorithms

A flexible mixed-optimization with H∞ control for coupled twin rotor MIMO system based on the method of inequality (MOI)- An Experimental Study

This article introduces a cutting-edge H∞ model-based control method for uncertain Multi Input Multi Output (MIMO) systems, specifically focusing on UAVs, through a flexible mixed-optimization framework using the Method of Inequality (MOI). The proposed approach adaptively addresses crucial challenges such as unmodeled dynamics, noise interference, and parameter variations. Central to the design is a two-step controller development process. The first step involves Nonlinear Dynamic Inversion (NDI) and system decoupling for simplification, while the second step integrates H∞ control with MOI for optimal response tuning. This strategy is distinguished by its adaptability and focus on balancing robust stability and performance, effectively managing the intricate cross-coupling dynamics in UAV systems. The effectiveness of the proposed approach is validated through simulations conducted in MATLAB/Simulink environment. Results demonstrated the efficiency of the proposed robust control approach as evidenced by reduced steady-state error, diminished overshoot, and faster system response times, thus significantly outperforming traditional control methods