Empirical essays on the governance of financial institutions

The four essays in this dissertation examine various topics related to the governance of financial institutions. The essays focus on the behavior and performance of pension funds and banks with the aim to identify suboptimal features in their institutional setup. Part I examines the management of pension funds with a focus on operating costs and investment behavior. In particular, the first essay examines the variation in operating costs of pension funds and shows that this is mainly explained by (unutilized) economies of scale and to a lesser extent by the type of fund (industry funds are most efficient). The second essay studies the variation of investment sophistication and shows that less sophisticated pension funds tend to mitigate their lack of sophistication by selecting investment policies with a lower risk profile. The third essay examines the variation of pension fund investment policies over time and shows that this is influenced by the short- and medium-term performance of the stock market. Part II focuses on a market mechanism that provides economic incentives to limit risk taking in the banking system. Specifically, the last essay shows that a variation in bank risk influences the supply of uninsured deposits. This study also shows that the introduction of explicit deposit insurance significantly reduces market discipline by depositors, thereby increasing incentives for banks to take (excessive) risks.