Does Board Structure in Banks Really Affect Their Performance?

39 Pages Posted: 27 Jul 2011 Last revised: 26 Dec 2012

See all articles by Shams Pathan

Shams Pathan

University of Newcastle - Newcastle University Business School

Robert W. Faff

University of Queensland; Bond University

Multiple version iconThere are 2 versions of this paper

Date Written: December 26, 2012

Abstract

We study whether board structure (board size, independence and gender diversity) in banks relates to performance. Using a broad panel of large US bank holding companies over the period 1997–2011, we find that both board size and independent directors decrease bank performance. Although gender diversity improves bank performance in the pre-Sarbanes–Oxley Act (SOX) period (1997–2002), the positive effect of gender diminishes in both the post-SOX (2003–2006) and the crisis periods (2007–2011). Finally, we show that board structure is particularly relevant for banks with low market power, if they are immune to the threat of external takeover and/or they are small. Our two-step system generalised method of moments estimation accounts for endogeneity concerns (simultaneity, reverse causality and unobserved heterogeneity). The findings are robust to a wide range of other sensitivity checks including alternative proxies for bank performance.

Keywords: Board Structure, Board Size, Board Independence, Gender Diversity, Bank Holding Companies, Endogeneity, System GMM, Sarbanes-Oxley Act

JEL Classification: G21, G28, G30, G32, G38

Suggested Citation

Pathan, Shams and Faff, Robert W., Does Board Structure in Banks Really Affect Their Performance? (December 26, 2012). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1895885 or http://dx.doi.org/10.2139/ssrn.1895885

Shams Pathan (Contact Author)

University of Newcastle - Newcastle University Business School ( email )

5 Barrack Road
Frederic Douglass Centre
NEWCASTLE UPON TYNE, NE4 5TG
United Kingdom

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Bond University ( email )

Gold Coast, QLD 4229
Australia

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