Do bank regulations affect board independence? A cross-country analysis

Li Li and Frank M. Song

Journal of Banking & Finance, 2013, vol. 37, issue 8, 2714-2732

Abstract: Based on the hand-collected board structure data of 277 listed banks across 55 countries, and the bank regulation and supervision database compiled by the World Bank, this paper provides the first cross-country assessment of the impacts of bank regulations on board independence of banks. In line with Beck et al. (2006), we examine the effects of two types of regulation policies, the first involving the empowerment of supervisory agencies to monitor and discipline banks directly, and the second focusing on encouraging private monitoring of banks through requiring disclosure of more accurate and complete information. We find that empowering official supervisory agencies to discipline banks directly reduces board independence, but encouraging private sector monitoring of banks increases it. The findings suggest that the first type of regulations tends to crowd out the internal governance of banks, while the second crowds in it. We also find that the legal system with better investor rights protection and better contracts enforcement not only increases board independence but also enhances the crowding in effect of promoting private monitoring and decreases the crowding out effect of direct official supervision on board independence.

Keywords: Bank regulation; Internal governance; Board independence (search for similar items in EconPapers)
JEL-codes: G28 G3 L51 O16 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:8:p:2714-2732

DOI: 10.1016/j.jbankfin.2013.03.026

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