Corporate Governance in Banking: The Role of the Board of Directors

Pablo de Andrés () and Eleuterio Vallelado
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Eleuterio Vallelado: Department of Financial Economics and Accounting, University of Valladolid.

No 604, Working Papers from Departament Empresa, Universitat Autònoma de Barcelona

Abstract: We use a sample of large international commercial banks to test hypotheses on the dual role of boards of directors. We use a suitable econometric model (two step system estimator) to solve the well-known endogeneity problem in corporate governance literature, and demonstrate the empirical and theoretical superiority of system estimator over OLS and Within estimators. We find an inverted U-shaped relation between bank performance and board size, and between the proportion of non-executive directors and performance. Our results show that bank board composition and size are related to directors’ ability to monitor and advise management, and that larger and not excessively independent boards might prove more efficient in monitoring and advising functions, and create more value. All of these relations hold after we contro l for the measure of performance, the weight of the banking industry in each country, bank ownership, and regulatory and institutional differences.

Keywords: Corporate Governance; Board of Directors; Commercial Banks. (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2006-06, Revised 2006-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Working Papers at the Department of Business, June 2006 pages 1-47

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