Do Independence and Financial Expertise of the Board Matter for Risk Taking and Performance?

Charles A. Dice Center Working Paper No. 2010-14

Fisher College of Business Working Paper No. 2010-03-014

66 Pages Posted: 21 Aug 2010 Last revised: 14 Mar 2012

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

Multiple version iconThere are 2 versions of this paper

Date Written: June 20, 2011

Abstract

During the recent financial crisis, financial expertise among independent directors of commercial banks is negatively related to changes in both firm value and cumulative stock returns. Furthermore, financial expertise is positively associated with risk-taking levels in the run-up to the crisis using both balance-sheet and market-based measures of risk. These results are not driven by powerful CEOs who select independent experts to rubber stamp strategies that satisfy their risk appetite. They are, however, consistent with independent directors with financial expertise recognizing the residual nature of shareholders’ claim and supporting a heightened risk profile for their bank.

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., Do Independence and Financial Expertise of the Board Matter for Risk Taking and Performance? (June 20, 2011). Fisher College of Business Working Paper No. 2010-03-014. Available at SSRN: https://ssrn.com/abstract=1661855 or http://dx.doi.org/10.2139/ssrn.1661855

Bernadette A. Minton (Contact Author)

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

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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