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Open Access
Article
Publication date: 5 April 2023

Antonia Patrizia Iannuzzi, Stefano Dell’Atti, Elisabetta D'Apolito and Simona Galletta

Based on the agency and resource dependence theories, this study aims to investigate whether nomination committee (NC) characteristics could serve as key attributes for reducing…

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Abstract

Purpose

Based on the agency and resource dependence theories, this study aims to investigate whether nomination committee (NC) characteristics could serve as key attributes for reducing environmental, social and governance (ESG) disputes and whether NC composition affects the appointment of ESG-friendly directors to the board.

Design/methodology/approach

This study focuses on a sample of 30 global systemically important banks from 2015 to 2021. The authors estimate panel data models with fixed effects, clustering heteroskedastic standard errors at the bank level to account for the serial correlation of the dependent variables for each bank.

Findings

Banks’ exposure to ESG controversies can be reduced when NC members have specific skills, in particular when at least one member of this committee also belongs to the sustainability committee and is a foreign director. Moreover, banks’ ESG disputes decrease when the NC members are younger, while the share of independent NC members has a negative impact. Finally, a positive influence of NC composition and its members’ features as well as the appointment of ESG-friendly directors on the board is found.

Originality/value

The findings are particularly useful during periods such as the current one, when there is growing attention to both banks’ corporate governance, the subcommittees’ role and functioning and social and environmental issues. This study shows that the NC is important in reducing the likelihood of banks incurring ESG disputes and in appointing more ESG-friendly directors. NC effective functioning and its members’ qualities serve as a key attribute for fulfilling objective assessment and improving board effectiveness.

Details

Corporate Governance: The International Journal of Business in Society, vol. 23 no. 6
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 12 January 2015

Siew Peng Lee and Mansor Isa

The purpose of this paper is to examine the association between directors’ remuneration and performance and corporate governance in the Malaysian banking sector, using panel data…

3652

Abstract

Purpose

The purpose of this paper is to examine the association between directors’ remuneration and performance and corporate governance in the Malaysian banking sector, using panel data for 21 banks over the period 2003-2011.

Design/methodology/approach

The authors use multivariate regression analysis to examine the relationship between directors’ remuneration and performance and corporate governance. The authors also run Granger causality test to determine the existence of causality between directors’ remuneration and performance.

Findings

The authors find clear evidence of a positive association between directors’ remuneration and performance. Further, the causality test reveals that directors’ remuneration tends to Granger-cause performance. In terms of governance variables, the authors find that directors’ remuneration is positively related to the percentage of independent directors, and negatively related to board size, but unrelated to duality and percentage of director share ownership. The authors also find that remuneration is positively related to bank size and negatively related to capital ratio. The evidence also shows that foreign banks perform better than domestic banks despite the relatively lower pay received by their directors.

Practical implications

The findings imply that high-quality directors, as implied by their remuneration packages, are a significant determinant of performance.

Originality/value

The results of this study provide new evidence concerning the relationship between directors’ remuneration and performance in the banking sector in Malaysia.

Details

Managerial Finance, vol. 41 no. 1
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 4 May 2012

Elizabeth Cooper and Hatice Uzun

This paper aims to analyze the impact of busy directors on bank risk. Busy directors are directors with multiple directorships and other corporate responsibilities.

1313

Abstract

Purpose

This paper aims to analyze the impact of busy directors on bank risk. Busy directors are directors with multiple directorships and other corporate responsibilities.

Design/methodology/approach

First, univariate analysis is performed to see whether there are differences in governance structures of banks with busy boards and those with less‐busy boards of directors. Second, multivariate regression analysis is used with two measures of bank risk as the dependent variable to see whether busy directors impact bank risk, while controlling for other factors that may influence risk.

Findings

The paper finds that there are significant differences between banks in terms of governance structure when analyzing banks with busy boards and banks with less‐busy boards. Importantly, the study shows that bank risk is positively related to multiple board appointments of bank directors.

Research limitations/implications

These results provide support for the “busyness hypothesis” as opposed to the “reputation hypothesis” and add to the understanding of whether busy directors hurt or help boards.

Practical implications

Results are important for regulators who seek to maintain a safe and sound banking system. Regulators can gain a better understanding of how much time and effort individual directors can contribute to a bank under examination.

Originality/value

This is the first study in the banking literature on multiple board appointments. It also uses a unique approach to test whether director busyness is a determinant of bank risk.

Details

Managerial Finance, vol. 38 no. 6
Type: Research Article
ISSN: 0307-4358

Keywords

Abstract

Details

The Theory and Practice of Directors’ Remuneration
Type: Book
ISBN: 978-1-78560-683-0

Article
Publication date: 25 October 2022

Chen Liu and Yan Wendy Wu

The authors investigate how a gender-diverse board, a gender-diverse executive team, or a female chief executive officer (CEO) impact bank balance sheet and equity risk.

Abstract

Purpose

The authors investigate how a gender-diverse board, a gender-diverse executive team, or a female chief executive officer (CEO) impact bank balance sheet and equity risk.

Design/methodology/approach

Using panel data of U.S. bank holding companies over the period of 1992–2019, the authors conduct panel regressions with bank and year-fixed effects to analyze how female directors, female executives, and female CEOs impact a wide range of bank risk measures, controlling for the bank, board and executive characteristics.

Findings

The authors find female directors significantly reduce all types of risk. Female executives reduce some balance sheet risk but have an insignificant effect on bank equity risk. However, the presence of female CEOs does not significantly reduce bank risk-taking. During financial crises, female CEOs even increase equity risk.

Social implications

The findings are important to shed light on the ongoing debate on how gender quota policy could be efficiently used to balance the need for gender diversity while ensuring corporate performance. It could also improve social welfare by guiding proper public policy to ensure the efficient use of social labor capital and curb banks' excessive risk-taking incentives.

Originality/value

The authors provide the first empirical evidence demonstrating that female directors and female executives in the banking industry have different impacts on bank risk-taking. The authors also provide the first empirical evidence that female leaders have a different impact on two different types of risks: balance sheet and equity risk. The study is also the first to analyze the impact of female executives over multiple financial crises.

Details

Managerial Finance, vol. 49 no. 5
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 9 September 2021

Elisa Menicucci and Guido Paolucci

The purpose of this paper is to investigate the relationship between gender diversity and the risk profile of Italian banks during the period 2015–2019. This study examines…

1373

Abstract

Purpose

The purpose of this paper is to investigate the relationship between gender diversity and the risk profile of Italian banks during the period 2015–2019. This study examines whether the presence of female board directors or top executives has any significant effect on bank risk-taking.

Design/methodology/approach

To explore the influence of women on bank risk-taking, the authors analyzed a sample of 387 Italian banks and developed an econometric model applying unbalanced panel data with firm fixed effects and controls per year. Within a multivariate regression model, the authors considered five risk dimensions to verify the effect of gender diversity.

Findings

The findings suggest that female board directors and executives are considerably more risk averse and less overconfident than their male colleagues, thus confirming a negative causality between risk-taking and gender diversity. The results reveal that banks headed by women are less risky because they report higher capital adequacy and equity to assets ratios. As credit risk in female-led banks is no different from male-led ones, higher capital adequacy does not derive from lower asset quality because it is linked to the higher risk aversion of female directors and top managers.

Research limitations/implications

From a theoretical standpoint, the results suggest that having women in executive positions entails different risk implications for Italian banks; from a managerial perspective, the results highlight conditions that may promote the role of women in the banking sector. The conclusions are of particular significance because they provide some support for the view that regulators should favor gender quotas in the board management of banks to reduce risk-taking behavior.

Originality/value

This paper offers an in-depth examination of the risk practices of banks and it attempts to bridge the gap in prior literature on the risk profile of the Italian banking industry given that few empirical studies have examined the determinants of risk-taking in this field, to date. The findings on the higher risk aversion of women directors advance the understanding of the determinants of risk-taking behavior in banks, suggesting that gender quotas in bank boards can contribute to reducing risk-taking behavior. This also unveils some policy implications for bank regulatory authorities.

Details

Corporate Governance: The International Journal of Business in Society, vol. 22 no. 2
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 16 November 2010

Alessandro Carretta, Vincenzo Farina and Paola Schwizer

This paper aims to develop a model to assess the effectiveness and compliance of bank boards, taking into account their unique characteristics, financial industry standards and…

1261

Abstract

Purpose

This paper aims to develop a model to assess the effectiveness and compliance of bank boards, taking into account their unique characteristics, financial industry standards and regulations.

Design/methodology/approach

The literature on the roles and effectiveness of boards and directors in the financial industry is reviewed.

Findings

The main finding in the literature suggests that evaluating the effectiveness of a board must include characteristics of the entire board as well as individual contributions of directors.

Practical implications

Banking boards, more than in the past, must proactively evaluate their effectiveness and compliance with existing rules.

Originality/value

The paper proposes a model for assessing the effectiveness and compliance of boards and directors of banking organizations, considering their characteristics, financial industry standards and regulations.

Details

Journal of Financial Regulation and Compliance, vol. 18 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 8 June 2012

James Tompkins and Robert Hendershott

Takeovers create a potential conflict of interest between target shareholders and directors. While mergers generally create value for the target shareholders, their directors will

1108

Abstract

Purpose

Takeovers create a potential conflict of interest between target shareholders and directors. While mergers generally create value for the target shareholders, their directors will typically lose their board seats and likely face a financial loss or loss of prestige. The purpose of this paper is to examine evidence to support or refute that directors may act in their own best interests at the expense of shareholders.

Design/methodology/approach

The authors reason that if directors act in their own best interests, then acquiring firms will seek targets with older board members who are closer to director retirement and are therefore less reluctant to give up their board seats. The paper uses data of 528 banks between 1999 and 2004 to estimate logistic regressions controlling for variables relevant to takeover probability. In the hypotheses, the authors test for the significance of the average director age on a board.

Findings

The paper finds a highly positive significant relation between the average age of a board of directors and the probability of takeover. Furthermore, this variable is more robust and has greater explanatory power in predicting takeover targets than all other financial, ownership and governance variables commonly controlled for and included in this study. This suggests that older directors are less prone to agency problems and more willing to make decisions that will likely result in the loss of their board seat.

Practical implications

These findings have important policy implications on director retirement policies such as director age versus term limits. The results also have implications on the use of director golden parachutes. Finally, the authors highlight a strategic consideration for acquiring firms seeking takeover targets.

Originality/value

This paper is the first, to the best of the authors' knowledge, to document board age as an important governance characteristic.

Details

Corporate Governance: The international journal of business in society, vol. 12 no. 3
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 3 April 2009

Mohamed Belkhir

This paper aims to investigate the relationship between board size and performance in a sample of 174 bank and savings‐and‐loan holding companies, over the period 1995‐2002.

6953

Abstract

Purpose

This paper aims to investigate the relationship between board size and performance in a sample of 174 bank and savings‐and‐loan holding companies, over the period 1995‐2002.

Design/methodology/approach

In order to examine the relationship between board of directors' size and performance in the banking industry, the paper uses various statistical tools, including panel univariate analyses and panel data techniques.

Findings

Contrary to theories predicting that smaller boards of directors are more effective, increasing the number of directors in banking firms does not undermine performance. In contrast, the evidence is in favor of a positive relationship between board size and performance, as measured by Tobin's Q and the return on assets. The paper investigates whether this positive association is due to the fact that banks reduce the number of their directors in the aftermath of poor performance by testing for the relationship between board size and performance. The findings show that the number of directors leaving the board and the number of those joining the board for the first time increase following a poor performance, but the net change in board size is not affected by past performance.

Research limitations/implications

The paper recognizes that a number of factors that are not controlled for in this study might be behind the positive empirical association between board size and the performance measures used.

Practical implications

The results of this study suggest that the calls to reduce the number of directors in banks might have adverse effects on performance.

Originality/value

This paper contributes to the banking literature by investigating the relationship between an important governance mechanism, the board of directors, and performance in banking firms.

Details

International Journal of Managerial Finance, vol. 5 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 6 June 2016

Sok-Gee Chan, Eric H.Y. Koh and Mohd Zaini Abd Karim

The purpose of this paper is to examine the impact of the directors’ socioeconomic backgrounds on the risk-taking behavior of the listed commercial banks in China.

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Abstract

Purpose

The purpose of this paper is to examine the impact of the directors’ socioeconomic backgrounds on the risk-taking behavior of the listed commercial banks in China.

Design/methodology/approach

The generalized least square method and Arellano and Bover’s (1995) generalized method of moment were used to study the relationship between the directors’ socioeconomic backgrounds and bank risk-taking behavior. The sample studied consists of 16 listed commercial banks in China from 2003 to 2011.

Findings

It was found that smaller board sizes and higher percentage of independent directors contribute to lower risk-taking. The results also indicate that banks are better off with boards that have gender diversity, government affiliation and higher average age because they enhance problem-solving and market insights facilitate adherence to government or regulatory policies and help reduce the banks’ risks.

Research limitations/implications

Future studies may consider including non-public-listed banks, pre-2003 data and analyses of the agencies to which the government-affiliated directors are or were attached.

Practical implications

The paper suggests that corporate governance reform initiatives with closely monitored implementation and phased liberalization contributed toward the banking industry’s resilience. Implications for management include that boards of directors with better quality, sufficient independence, gender diversity, government affiliation and maturity will help reduce risks.

Social implications

This study may facilitate the decision-making for the bank management and policymakers on the selection of best directors in the Chinese banking sector. The Chinese banking system serves as a plausible role model for consideration, given that four of its banks have now leapfrogged to be among the top ten largest banking institutions after the global financial crisis.

Originality/value

The study covers a wide range of socioeconomic backgrounds of the board of directors which are crucial in influencing the behavior of the board in banking operations.

Details

Chinese Management Studies, vol. 10 no. 2
Type: Research Article
ISSN: 1750-614X

Keywords

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