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Does board structure in banks really affect their performance?

Lookup NU author(s): Dr Shams PathanORCiD

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Abstract

We study whether board structure (board size, independence and gender diversity) in banks relates to performance. Using a broad panel of large US bank holding companies over the period 1997-2011, we find that both board size and independent directors decrease bank performance. Although gender diversity improves bank performance in the pre-Sarbanes-Oxley Act (SOX) period (1997-2002), the positive effect of gender diminishes in both the post-SOX (2003-2006) and the crisis periods (2007-2011). Finally, we show that board structure is particularly relevant for banks with low market power, if they are immune to the threat of external takeover and/or they are small. Our two-step system generalised method of moments estimation accounts for endogeneity concerns (simultaneity, reverse causality and unobserved heterogeneity). The findings are robust to a wide range of other sensitivity checks including alternative proxies for bank performance. © 2013 Elsevier B.V.

Publication metadata

Author(s): Pathan S, Faff R

Publication type: Article

Publication status: Published

Journal: Journal of Banking and Finance

Year: 2013

Volume: 37

Issue: 5

Pages: 1573-1589

Print publication date: 01/05/2013

Online publication date: 23/01/2013

ISSN (print): 0378-4266

ISSN (electronic): 1872-6372

Publisher: Elsevier BV

URL: https://doi.org/10.1016/j.jbankfin.2012.12.016

DOI: 10.1016/j.jbankfin.2012.12.016

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