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Taking the Lord’s Name in Vain: The Impact of Connected Directors on 19th century British Banks

Listed author(s):
  • Richard S.Grossman

    ()

    (Department of Economics, Wesleyan University)

  • Masami Imai

    ()

    (Department of Economics, Wesleyan University)

This paper utilizes data on the presence of prominent individuals—that is, those with political (e.g., Members of Parliament) and aristocratic titles (e.g., lords)--on the boards of directors of English and Welsh banks from 1879-1909 to investigate whether the appointment of wellconnected directors enhanced equity value for bank shareholders. Our analysis of panel data shows that the appointment of connected directors did not increase the rate of return on bank equity. In fact, we find that the appointment of MPs to directorships had negative effects on bank equity returns. Our event-study analysis corroborates this finding, showing that a bank’s shares exhibited negative abnormal returns when their directors were elected to Parliament. Taken together, our results indicate that connected directors yielded little--or even negative--economic payoff to bank shareholders in pre-war Britain.

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File URL: http://repec.wesleyan.edu/pdf/rgrossman/2014004_grossman.pdf
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Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2014-004.

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Length: 40 pages
Date of creation: Oct 2014
Handle: RePEc:wes:weswpa:2014-004
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