Moral hazard, corporate governance, and bank failure : evidence from the 2000-2001 Turkish crises

Abstract EN

This paper analyzes the role of moral hazard and corporate governance structures in bank failures within the context of the 2000-2001 currency and financial crises experienced in Turkey.

The findings suggest that poor performers with lower earnings potential and managerial quality, and hence lower franchise value, were more likely to respond to moral hazard incentives provided by the regulatory failures and full coverage deposit insurance system.

The findings also suggest that ownership and control variables are significantly related to the probability of failure.

Privately owned Turkish commercial banks were more likely to fail.

Moreover, among the privately owned Turkish commercial banks, the existence of family involvement on the board increased the probability of failure.