Bank Holding Company Performance, Risk and "Busy" Board of Directors

Elyas Elyasiani and Ling Zhang
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Elyas Elyasiani: Temple University and University of PA
Ling Zhang: Temple University

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: We examine the association between "busyness" of the board of directors (serving on multiple boards) and bank holding company (BHC) performance and risk, an overlooked dimension of corporate governance in the banking literature. We estimate several simultaneous-equations models over the 2001-2010 period employing the 3SLS technique and instrumental variables to account for endogeneity. We find that BHC performance measures (return on assets, Tobin's Q and earnings before interest and taxes over total assets) are positively associated with busyness of directors while BHC risks (total, market, idiosyncratic, credit and default risks) are inversely related to it. Performance (risk) benefits of having busy directors strengthened (weakened) during the recent financial crisis. Busy directors are not more likely to become problem directors (fail the 75% attendance standard) and if sitting on boards of both BHC and non-financial firms, they attend more of the BHC board meetings than those of the non-financials. Our findings partially alleviate concerns that over-boarded directors shirk their responsibilities. Implications for investors, regulators, and firm managers are drawn.

JEL-codes: G18 G21 G39 (search for similar items in EconPapers)
Date: 2013
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