Do Independence and Financial Expertise of the Board Matter for Risk Taking and Performance?
AbstractWe examine how risk taking and firm value are related to board independence and financial expertise for a broad sample of U.S. financial institutions during the 2001 to 2008 period. Market-based measures of risk are negatively related to the percent of independent directors, while market-based risk measures, leverage, and stock performance prior to the crisis are all positively related to the percent of independent directors who are financial experts. These associations are primarily driven by large banks in our sample. During the crisis, financial expertise is negatively related to both Tobin's Q and cumulative stock performance and positively related to the probability of receiving TARP funds. The results are consistent with financial expertise being associated with more risk taking and higher firm value especially for large banks prior to the crisis; however, the presence of financial experts on the banks' boards did not help in alleviating the impact of the financial crisis.
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Bibliographic InfoPaper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2010-14.
Date of creation: Aug 2010
Date of revision:
Find related papers by JEL classification:
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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- Arthur Petit-Romec, 2011. "L'intÃ©rÃªt d'un renforcement des fonds propres bancaires (et de mesures complÃ©mentaires) pour concilier stabilitÃ© financiÃ¨re, performance et bon fonctionnement des banques," Post-Print dumas-00643745, HAL.
- Aebi, Vincent & Sabato, Gabriele & Schmid, Markus, 2012. "Risk management, corporate governance, and bank performance in the financial crisis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(12), pages 3213-3226.
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