The impact of board structure on bank loan herding via mediation of underperformance

Hao Fang, Chieh-Hsuan Wang, Hwey-Yun Yau, Chien-Ping Chung and Yen-Hsien Lee

Asia-Pacific Journal of Accounting & Economics, 2023, vol. 30, issue 6, 1494-1517

Abstract: When weak governance practices cause poor bank lending performance, banks are more likely to engage in ‘loan herding’ to avoid a sustained performance deterioration. Using the three main types of Chinese banks as our sample, this study first confirms the existence of loan herding and the positive effects of a weak board structure on poor lending performance (i.e. underperformance). Then, after finding positive impacts of this underperformance on loan herding, we examine whether board structure variables negatively affect loan herding. We find that higher director compensation, a moderate average age of directors, and higher director education levels significantly reduce bank loan herding, whereas board duality and the presence of very old directors significantly increase bank loan herding. Finally, we study the mediation effect of loan performance on the relationship between board structure and loan herding. Our results show that board governance quality affects loan performance, which, in turn, affects loan herding.

Date: 2023
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DOI: 10.1080/16081625.2022.2067883

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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