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

Author

Listed:
  • Minton, Bernadette

    (Ohio State University)

  • Taillard, Jerome P. A.

    (Boston College)

  • Williamson, Rohan

    (Georgetown University)

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.

Suggested Citation

  • Minton, Bernadette & Taillard, Jerome P. A. & Williamson, Rohan, 2010. "Do Independence and Financial Expertise of the Board Matter for Risk Taking and Performance?," Working Paper Series 2010-14, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  • Handle: RePEc:ecl:ohidic:2010-14
    as

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    File URL: http://www.cob.ohio-state.edu/fin/dice/papers/2010/2010-14.pdf
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    Cited by:

    1. Ahmed Zemzem & Oumeima Kacem, 2014. "Risk Management, Board Characteristics and Performance in the Tunisian Lending Institutions," International Journal of Finance & Banking Studies, Society for the Study of Business & Finance, vol. 3(1), pages 186-200, January.
    2. 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.
    3. Sun, Jerry & Liu, Guoping, 2014. "Audit committees’ oversight of bank risk-taking," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 376-387.
    4. repec:spt:apfiba:v:8:y:2018:i:2:f:8_2_6 is not listed on IDEAS

    More about this item

    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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