Does Independent Industry Expertise Improve Board Effectiveness? Evidence From Bank CEO Turnovers

Zhongdong Chen

International Review of Finance, 2020, vol. 20, issue 3, 665-699

Abstract: This study explores the impact of independent bank directors’ financial industry expertise on board effectiveness by investigating bank CEO turnovers and post‐turnover bank performance. Empirical results find such expertise increases the probability of forced CEO turnover and the probability of outsider succession. It improves bank performance and reduces bank risk‐taking following a forced CEO turnover. This is likely because industry‐specific expertise enhances boards’ ability to locate a superior successor CEO and to monitor and advise the new management. Market reaction to bank CEO turnover announcements tends to agree with this view.

Date: 2020
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International Review of Finance is currently edited by Bruce D. Grundy, Naifu Chen, Ming Huang, Takao Kobayashi and Sheridan Titman

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