The effect of board size and composition on European bank performance

Abstract

Corporate governance, Bank performance, Board size, Board composition, G21, G34, L25, K20,

Bank Ownership, Board Characteristics and Performance: Evidence from Commercial Banks in India

“…Also, the total effect of board independence in these banks on performance is positive. These results are in contrast to the largely insignificant effect that other studies find either with respect to market value (Adams and Mehran 2012) or profitability (Staikouras et al 2007). …”

“…This viewpoint, rooted in social psychology and behavioural finance argues that independent directors are unlikely to be truly independent of management (for a review, see for example, (Morck 2004;Fink 2006)). Mirroring the theoretical debate, empirical evidence on board independence and firm performance is inconclusive both with respect to non-financial firms (Agrawal and Knoeber 1996;Bhagat and Black 2002;Hermalin and Weisbach 1991), as well as with respect to banks, with some studies finding no effect (e.g., Pi and Timme 1993;Adams and Mehran 2012) and some studies finding a positive effect (Staikouras et al 2007;Liang et al 2013). In line with existing literature, we estimate the effect of board independence on bank performance by incorporating a variable Board Independence which is measured as the percentage of independent directors present on the bank's board, where an independent director is one who apart from receiving director's remuneration, does not have any material pecuniary relationships or transactions with the company and satisfies all the other conditions listed under Clause 49 of the Listing Agreement.…”

Corporate Governance and Accounting Performance: A Balanced Scorecard Approach

“…In financial firms, many studies documented that banking firms have larger boards that have positive effect on performance, for example, Subrahmanyam et al (1997), and Andres and Vallelado (2008). The reasons behind the large boards of banks are the large firm size in terms of total assets (Staikouras et al, 2007;and Linck et al, 2008), the increase of mergers and acquisitions activity in banks which cause restructuring in boards, and complicated structure of banks (Adams and Mehran, 2005). Therefore, we predict banks with large boards have higher performance.…”

“…the increase in mergers and acquisitions activity and complicated hierarchical structure of the BHC and complex organizational structure of banks (Adams and Mehran, 2005). Studies testing the effect of board independence show that bank performance is not improved by increasing the proportion of independent directors in banks and no significant relationship between presence of outsiders and bank performance (Pi and Timme, 1993;and Staikouras et al, 2007). However, other studies suggest that larger banks have larger board size composed of more independent directors (e.g.…”

“…Subrahmanyam et al, 1997;and Belkhir, 2009). Staikouras et al (2007) report that percentage of outside directors on banks boards ranges from a minimum of 16.67 percent to a maximum of 90.00 percent, with a mean of 64.40 percent in a sample of 58 large European banks from . Andres and Vallelado (2008 record the percentage of outsiders to be 79 percent of directors, but when reaching a high proportion over the total board, Q starts to diminish indicating that the advisory role and the information provided by inside directors are important to perform efficiently.…”