Independent directors’ connectedness and bank risk-taking

Abu Amin, Sabur Mollah, Syed Kamal, Yang Zhao and Rasim Simsek

Journal of Financial Stability, 2024, vol. 75, issue C

Abstract: This study examines the role of independent directors’ network centrality in bank risk-taking. Following the shareholder-incentive hypothesis and social-network theory, we predict and find that independent directors’ connectedness is positively associated with bank risk-taking. The results hold after a battery of robustness checks and endogeneity tests. Furthermore, consistent with the influence channel of networks, we show that connectedness empowers independent directors, whereas influential independent directors facilitate aggressive investment. We also find that the risk-taking effects are more pronounced for complex banks and banks with higher equity capital, higher income diversity, and lower cost-efficiency.

Keywords: Risk-taking; Network centrality; Independent directors’ connectedness (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:75:y:2024:i:c:s1572308924001098

DOI: 10.1016/j.jfs.2024.101324

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