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Reconciling Conflicting Perspectives for Board “Friendliness” in Banks' Risk Management

Lookup NU author(s): Dr Vu TrinhORCiD


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We introduce a simplified framework for board friendliness (i.e., board-CEO network ties) – based on its co-existence of benefits and costs – to reconcile its two conflicting views. We then examine banks' risk management quality via tail risk along the friendliness spectrum and find evidence of a U-shape association confirming a cost-benefit trade-off process. To reach a stationary equilibrium, at most 60% of independent directors should be connected with CEOs, and the total number of board-CEO connections should be, at most, the complete board size. Additionally, banks' monitoring effectiveness and counselling needs enhance the friendliness benefits and mitigate costs. Banks with the lowest (highest) values of monitoring and counselling needs should allow CEOs to be connected with a maximum of 32.46% (72%) of the board and to have connections equalling 50% (120%) of the board size. Moreover, banks appointing diverse boards can benefit more from friendliness through higher advisory and monitoring effectiveness.

Publication metadata

Author(s): Cao DN, Trinh VQ, Duong K

Publication type: Conference Proceedings (inc. Abstract)

Publication status: Published

Conference Name: IFABS 2023

Year of Conference: 2023

Pages: 22-22

Acceptance date: 02/04/2023

Publisher: International Finance and Banking Society