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Does board structure in banks really affect their performance?

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  • Pathan, Shams
  • Faff, Robert

Abstract

We study whether board structure (board size, independence and gender diversity) in banks relates to performance. Using a broad panel of large US bank holding companies over the period 1997–2011, we find that both board size and independent directors decrease bank performance. Although gender diversity improves bank performance in the pre-Sarbanes-Oxley Act (SOX) period (1997–2002), the positive effect of gender diminishes in both the post-SOX (2003–2006) and the crisis periods (2007–2011). Finally, we show that board structure is particularly relevant for banks with low market power, if they are immune to the threat of external takeover and/or they are small. Our two-step system generalised method of moments estimation accounts for endogeneity concerns (simultaneity, reverse causality and unobserved heterogeneity). The findings are robust to a wide range of other sensitivity checks including alternative proxies for bank performance.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 5 ()
Pages: 1573-1589

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Handle: RePEc:eee:jbfina:v:37:y:2013:i:5:p:1573-1589

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Board structure; Board independence; Gender diversity; Bank holding companies; Endogeneity; System GMM; Sarbanes-Oxley Act;

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References

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Cited by:
  1. Howard Bodenhorn & Eugene N. White, 2014. "The Evolution of Bank Boards of Directors in New York, 1840–1950," NBER Chapters, in: Enterprising America: Businesses, Banks, and Credit Markets in Historical Perspective National Bureau of Economic Research, Inc.

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