Financial Expertise of the Board, Risk Taking, and Performance: Evidence from Bank Holding Companies

63 Pages Posted: 18 Aug 2009 Last revised: 18 Feb 2014

See all articles by Bernadette A. Minton

Bernadette A. Minton

Ohio State University (OSU) - Department of Finance

Jérôme Taillard

Babson College

Rohan Williamson

Georgetown University - McDonough School of Business

Date Written: November 1, 2012

Abstract

Financial expertise among independent directors of U.S. banks is positively associated with balance-sheet and market-based measures of risk in the run-up to the 2007-2008 financial crisis. While financial expertise is weakly associated with better performance before the crisis, it is strongly related to lower performance during the crisis. Overall, the results are consistent with independent directors with financial expertise supporting increased risk-taking prior to the crisis. Despite being consistent with shareholder value maximization ex ante, these actions become detrimental during the crisis. These results are not driven by powerful CEOs who select independent experts to rubber stamp strategies that satisfy their risk appetite.

Keywords: Governance, Risk Taking, Board Composition, Financial Expertise, Risk Management Committee

JEL Classification: G20, G21, G24, G32

Suggested Citation

Minton, Bernadette A. and Taillard, Jérôme and Williamson, Rohan G., Financial Expertise of the Board, Risk Taking, and Performance: Evidence from Bank Holding Companies (November 1, 2012). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming; Georgetown McDonough School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=1455997 or http://dx.doi.org/10.2139/ssrn.1455997

Bernadette A. Minton

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-688-3125 (Phone)
614-292-2359 (Fax)

Jérôme Taillard

Babson College ( email )

Babson Park, MA 02457-0310
United States
781-239-6451 (Phone)

Rohan G. Williamson (Contact Author)

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-2284 (Phone)
202-687-4031 (Fax)

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