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Does diversity of bank board members affect performance and risk? Evidence from an emerging market

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  • Bowo Setiyono

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

  • Amine Tarazi

    (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

Abstract

This study investigates the influence of background diversity of bank board members on performance and risk. Using data from Indonesian banks from 2001 to 2011 covering 4200 individual year observations and 21 ethnic groups, we estimate the degree of diversity by considering various aspects (gender, citizenship, age, experience, tenure, ethnicity, nationality, education level and type) and find significant impacts on bank performance. On the whole, diversity is in general positively associated with performance except when it relates to ethnicity. It not only reduces performance per se but also increases risk. Female presence and professional diversity reduce risk but nationality and ethnicity diversities are associated with higher risk. Education diversity generally leads to higher income volatility and leverage risk. Our results are generally robust to various alternative performance measures, including risk adjusted returns, and estimation methods.

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  • Bowo Setiyono & Amine Tarazi, 2014. "Does diversity of bank board members affect performance and risk? Evidence from an emerging market," Working Papers hal-01070988, HAL.
  • Handle: RePEc:hal:wpaper:hal-01070988
    Note: View the original document on HAL open archive server: https://hal-unilim.archives-ouvertes.fr/hal-01070988
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    2. Bodeutsch, D.S. & Franses, Ph.H.B.F., 2015. "Risk attitudes in company boardrooms in a developing country," Econometric Institute Research Papers EI 2015-04, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
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    5. Saeed, Abubakr & Belghitar, Yacine & Yousaf, Amna, 2016. "Firm-level determinants of gender diversity in the boardrooms: Evidence from some emerging markets," International Business Review, Elsevier, vol. 25(5), pages 1076-1088.

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    Keywords

    Bank Board; Performance; Risk; Diversity; Ethnicity; Emerging Market;
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