Majority-Minority Boards of Directors and Decision Making: The Effects of Homophily on Lending Decisions

Abstract

In this study, I examine the role racial minorities in the boardroom can play in reducing social injustice by promoting more equal access to mortgage credit to minority households. I develop a simple theoretical model that posits directors who are racial minorities provide the credit unions they govern with a perspective that shapes lenders’ trust of minority applicants. This trust is shaped by homophily and the tendency of individuals to prefer interactions with similar individuals. Using mortgage loan data from a cross-section of credit unions in the United States from 185,446 applications, I find that credit unions where the majority of board members are minorities are less likely to reject a similarly qualified minority applicant than their counterparts. Governance by minority directors significantly reduces the effects of discrimination faced by minority applicants. The board’s effect is strongest in minority neighborhoods and where the homophily is stronger between directors and applicants.

The Impact of Board Characteristics on the Financial Performance of Savings and Credit Co-operative Societies in Arusha and Dar es Salaam, Tanzania

“…Furthermore, previous studies on SACCOSs (e.g., Unda et al, 2017), have focused on financial performance using profitability indicators of return on asset (ROA) and return on equity (ROE), like in all profit-oriented entities, disregarding the uniqueness of SACCOSs as non-profit entities (Towo et al, 2019). Since SACCOSs are non-profit organisations, their core business centres on building members' savings culture and providing credit facilities amongst members that maximize the service of social benefits and financial sustainability (Goenner, 2021). Thus, such existing gaps in the available research motivated this study to explore and generate new insights into understanding SACCOSs in Tanzania.…”