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Bank Holding Company Performance, Risk and "Busy" Board of Directors

Author

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  • Elyasiani, Elyas

    (Temple University and University of PA)

  • Zhang, Ling

    (Temple University)

Abstract

We examine the association between "busyness" of the board of directors (serving on multiple boards) and bank holding company (BHC) performance and risk, an overlooked dimension of corporate governance in the banking literature. We estimate several simultaneous-equations models over the 2001-2010 period employing the 3SLS technique and instrumental variables to account for endogeneity. We find that BHC performance measures (return on assets, Tobin's Q and earnings before interest and taxes over total assets) are positively associated with busyness of directors while BHC risks (total, market, idiosyncratic, credit and default risks) are inversely related to it. Performance (risk) benefits of having busy directors strengthened (weakened) during the recent financial crisis. Busy directors are not more likely to become problem directors (fail the 75% attendance standard) and if sitting on boards of both BHC and non-financial firms, they attend more of the BHC board meetings than those of the non-financials. Our findings partially alleviate concerns that over-boarded directors shirk their responsibilities. Implications for investors, regulators, and firm managers are drawn.

Suggested Citation

  • Elyasiani, Elyas & Zhang, Ling, 2013. "Bank Holding Company Performance, Risk and "Busy" Board of Directors," Working Papers 13-24, University of Pennsylvania, Wharton School, Weiss Center.
    • Handle: RePEc:ecl:upafin:13-24
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    File URL: http://fic.wharton.upenn.edu/fic/papers/13/13-24.pdf
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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