Effect of the legal system country of European commercial banks on the financial distress

This study examines the effect of the legal system on the governance of banks and hence on financial distress. We compare corporate governance to the legal system in 18 countries of the European Union to explain the relationship between financial distress and bank governance. Using a sample of 147 commercial banks, we find that the effect of the legal system really counts. The results also suggest that banks operating in common law and civil law countries tend the concentration of ownership and board size to the effect of increasing the likelihood of financial distress. This study contributes to research in the governance of enterprise to provide empirical evidence that the legal system has the power to influence the financial health of banks.