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Do bankers on the board reduce crash risk?

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  • Min Jung Kang
  • Y. Han (Andy) Kim
  • Qunfeng Liao

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 high‐risk firms under the monitoring of affiliated banker‐directors. The results of this study are robust to the Heckman selection model, propensity score matching, and alternative measures of crash risk.

Suggested Citation

  • Min Jung Kang & Y. Han (Andy) Kim & Qunfeng Liao, 2020. "Do bankers on the board reduce crash risk?," European Financial Management, European Financial Management Association, vol. 26(3), pages 684-723, June.
    • Handle: RePEc:bla:eufman:v:26:y:2020:i:3:p:684-723
    DOI: 10.1111/eufm.12241
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