Do bankers on the board reduce crash risk?

Abstract

Commercial banker-directors (CBDs) bring both financial expertise in risk management and conflicts of interest between shareholders and debtholders. The burgeoning literature on stock price crash risk generates important questions of whether CBDs reduce crash risk.Using BoardEx data from 1999 to 2009, we find supporting evidence that the firms with CBDs experience lower stock price crash risk. Moreover, the reduction of crash risk is more pronounced for highrisk firms under the monitoring of affiliated bankerdirectors. The results of this study are robust to the Heckman selection model, propensity score matching, and alternative measures of crash risk.

Bankers on the Board and CEO Turnover

“…Bankers are different from entrepreneurs in perceiving and managing risks (Sarasvathy et al, 1998). They focus more on controlling risks and try to avoid situations where they may face higher levels of risk (Mitchell, 2015;Kang and Kim, 2017;Kang et al, 2019). This is because an increase in a bank's tail risk imposes more hardship and costs on its operation (Stulz, 2015;Srivastav et al, 2017).…”

“…We recognize the concern that CBDs may self-select to sit on certain types of boards. 18 To address such self-selection concern, we use Heckman's (1979) two-step procedure following Kang and Kim (2017) and Kang et al (2019) 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.…”

“…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.…”

Do Affiliated Bankers on Board Enhance Corporate Social Responsibility? US Evidence

“…There are several reasons that affiliated banker directors may have the incentives to improve firms' CSR performance. Besides having a fiduciary duty as other board members, affiliated banker directors may pursue the interests of their employing banks [18,19]. Affiliated banker directors have clear economic incentives from their employing banks to reduce risk of firms [19,20].…”

“…Besides having a fiduciary duty as other board members, affiliated banker directors may pursue the interests of their employing banks [18,19]. Affiliated banker directors have clear economic incentives from their employing banks to reduce risk of firms [19,20]. Existing literature has documented that engaging in CSR activities could reduce firms' downside risks [21,22].…”