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Heterogeneity in independent non-executive directors' attributes and risk-taking in large banks

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  • Mollah, Sabur
  • Liljeblom, Eva
  • Mobarek, Asma

Abstract

The extant literature suggests that complex firms can benefit from independent non-executive director (INED) quality. To address the issue of INED quality, we look at heterogeneity in the independent non-executive directors' (INEDs') attributes and explore whether this is related to risk-taking behaviour in large banks. We gather novel, hand-collected, director-level data for approximately 2400 independent non-executive directors (INEDs) of 185 global large banks from 35 countries for the period of 2004–2016, concluding that heterogeneity in INEDs' gender, financial expertise, and board tenure all influence risk-taking behaviour. Employing several identification strategies, we show that the cause seems to be heterogeneity in the INEDs' attributes, as channelled through information asymmetry. We also find that heterogeneity in the INEDs' attributes significantly mitigates bank risk-taking in the post-2009 period. Our study contributes to the literature on both the benefits of INEDs and director heterogeneity.

Suggested Citation

  • Mollah, Sabur & Liljeblom, Eva & Mobarek, Asma, 2021. "Heterogeneity in independent non-executive directors' attributes and risk-taking in large banks," Journal of Corporate Finance, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:corfin:v:70:y:2021:i:c:s0929119921001966
    DOI: 10.1016/j.jcorpfin.2021.102074
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    More about this item

    Keywords

    Independent non-executive director (INED); Attributes heterogeneity; Risk-taking; Large banks;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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