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Sitting on the Fence: Does Having a "Dual-Director" Add to Bank Profitability?

  • Savchenko, P.

    (Lund University, Lund, Sweden)

  • Semenova, M.

    (Center for Institutional Studies, National Research University Higher School of Economics, Moscow, Russia)

This paper investigates how the combination of positions of the Board of Directors and management affects bank's profitability. We use the 2010 bank-level data from 112 countries. Our results show that the positions' combination reduces banks' ROE. However, for banks in developing countries, the influence is close to zero and even positive for some specifications. We also show that the higher is the proportion of the Board members, who also hold a managerial position the lower is the profitability of a bank. This effect is, however, close to zero for banks in the developing countries. Thus, the corporate governance regulation should go beyond a simple restriction on holding simultaneously the CEO and the head of Board of Directors positions. The exception should be made for the developing countries, where the additional restrictions are not necessary.

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Article provided by New Economic Association in its journal Journal of the New Economic Association.

Volume (Year): 20 (2013)
Issue (Month): 4 ()
Pages: 12-32

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Handle: RePEc:nea:journl:y:2013:i:20:p:12-32
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  1. Savchenko, P. & Semenova, M., 2013. "Sitting on the Fence: Does Having a "Dual-Director" Add to Bank Profitability?," Journal of the New Economic Association, New Economic Association, vol. 20(4), pages 12-32.
  2. Webb Cooper, Elizabeth, 2009. "Monitoring and governance of private banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 253-264, May.
  3. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  4. Yeh, Yin-Hua & Woidtke, Tracie, 2005. "Commitment or entrenchment?: Controlling shareholders and board composition," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1857-1885, July.
  5. Pi, Lynn & Timme, Stephen G., 1993. "Corporate control and bank efficiency," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 515-530, April.
  6. Allen N. Berger & Thomas Kick & Klaus Schaeck, 2012. "Executive Board Composition and Bank Risk Taking," Working Papers 12004, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  7. Mohamed Belkhir, 2009. "Board structure, ownership structure and firm performance: evidence from banking," Applied Financial Economics, Taylor & Francis Journals, vol. 19(19), pages 1581-1593.
  8. John Griffith & Lawrence Fogelberg & H. Weeks, 2002. "CEO ownership, corporate control, and bank performance," Journal of Economics and Finance, Springer, vol. 26(2), pages 170-183, June.
  9. Brickley, James A. & Coles, Jeffrey L. & Jarrell, Gregg, 1997. "Leadership structure: Separating the CEO and Chairman of the Board," Journal of Corporate Finance, Elsevier, vol. 3(3), pages 189-220, June.
  10. Eralp Bektas & Turhan Kaymak, 2009. "Governance Mechanisms and Ownership in an Emerging Market: The Case of Turkish Banks," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 45(6), pages 20-32, November.
  11. Claessens, Stijn & Yurtoglu, B. Burcin, 2013. "Corporate governance in emerging markets: A survey," Emerging Markets Review, Elsevier, vol. 15(C), pages 1-33.
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