Does Financial Experience Help Banks during Credit Crises?
Nuno Goncalves Gracias Fernandes
Eliezer M. Fich
Drexel University - Department of Finance
May 27, 2013
We investigate whether board of directors with financial experience provide U.S. banks with a monitoring advantage or leads them to moral hazard. The recent credit crisis provides a natural experiment in which we test these conjectures. Our results reject the moral hazard hypothesis. Banks with more financial experts serving as outside directors (i) limit their risk exposure before the crisis, (ii) exhibit better stock return performance during the crisis, (iii) earn higher CARs around the collapse of both Bear Stearns and Lehman Brothers, and (iv) receive less bailout aid from the Troubled Assets Relief Program implemented by the U.S. government.
Number of Pages in PDF File: 41
Keywords: Financial expertise, Credit crisis, Bank returns, Moral hazard, Bailouts
JEL Classification: G21, H81, K23working papers series
Date posted: May 25, 2009 ; Last revised: May 27, 2013
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.359 seconds