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

59 Pages Posted: 18 Mar 2011

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: February 15, 2011

Abstract

During the recent financial crisis, financial expertise among independent directors of financial institutions is negatively related to changes in both Tobin’s Q 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 directors with financial expertise recognizing the residual nature of shareholders’ claim on a bank’s highly leveraged balance sheet that is guaranteed by the government.

Keywords: Governance, Risk Taking, Board Composition, 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? (February 15, 2011). Available at SSRN: https://ssrn.com/abstract=1787126 or http://dx.doi.org/10.2139/ssrn.1787126

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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