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Do all new brooms sweep clean? Evidence for outside bank appointments

Thomas Kick (), Inge Nehring and Andrea Schertler ()

Journal of Banking & Finance, 2017, vol. 84, issue C, 135-151

Abstract: Banks in bad financial shape are more likely to appoint executive directors from the outside than those in good shape. It is, however, not clear whether all of these appointments necessarily lead to the desired turnaround. We analyze the performance effects of new board members with external boardroom experience (outsiders) by distinguishing between good and bad managerial abilities of executives based on either ROA or risk-return efficiency of their previous employers. Our results show that banks appointing bad outsiders underperform other banks while those appointing good outsiders do so to a lesser extent. The performance differentials are highly pronounced in high-risk banks and in the post-crisis period.

Keywords: Executive directors; Outside appointments; Bank performance; Managerial ability (search for similar items in EconPapers)
JEL-codes: G21 G32 G34 C23 (search for similar items in EconPapers)
Date: 2017
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