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Do Independence and Financial Expertise of the Board Matter for Risk Taking and Performance?

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  • Minton, Bernadette

    (Ohio State University)

  • Taillard, Jerome P. A.

    (Boston College)

  • Williamson, Rohan

    (Georgetown University)

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    Abstract

    We 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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    File URL: http://www.cob.ohio-state.edu/fin/dice/papers/2010/2010-14.pdf
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    Bibliographic Info

    Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2010-14.

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    Date of creation: Aug 2010
    Date of revision:
    Handle: RePEc:ecl:ohidic:2010-14

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    Cited by:
    1. Arthur Petit-Romec, 2011. "L'intérêt d'un renforcement des fonds propres bancaires (et de mesures complémentaires) pour concilier stabilité financière, performance et bon fonctionnement des banques," Post-Print dumas-00643745, HAL.
    2. Sun, Jerry & Liu, Guoping, 2014. "Audit committees’ oversight of bank risk-taking," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 376-387.
    3. Aebi, Vincent & Sabato, Gabriele & Schmid, Markus, 2012. "Risk management, corporate governance, and bank performance in the financial crisis," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3213-3226.

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