Do Bankers on the Board Reduce Crash Risk?

Bankers on the Board and CEO Turnover

“…We recognize the concern that CBDs may self‐select to sit on certain types of boards. To address such self‐selection concern, we use Heckman’s () two‐step procedure following Kang and Kim () and Kang et al () in our untabulated analysis. In addition, we employ the propensity score matching procedure to ensure the results are not driven by small outliers and/or by systematic differences between CBD firms and non‐CBD firms in our untabulated analysis.…”

“…Bankers are different from entrepreneurs in perceiving and managing risks (Sarasvathy et al , ). They focus more on controlling risks and try to avoid situations where they may face higher levels of risk (Mitchell, ; Kang and Kim, ; Kang et al , ). This is because an increase in a bank’s tail risk imposes more hardship and costs on its operation (Stulz, ; Srivastav et al , ).…”

“…Boards of directors play an important role in monitoring and advising top managers (Adams et al , ). Above all, independent directors from commercial banks (commercial bank directors or CBDs) receive much more attention from economists (Black and Scholes, ; Booth and Deli, ; Kroszner and Strahan, ; Güner et al , ; Mitchell, ; Şişli‐Ciamarra, ; Hilscher and Şişli‐Ciamarra, ; Kang and Kim, ; Kang et al , ), because they bring both financial expertise and conflicts of interest between shareholders and debt holders.…”