Which Executive Characteristics Create Value in Banking? Evidence from Appointment Announcements

Abstract

This study seeks to understand how executive director heterogeneity affects the performance of US banks. To measure the expected performance effects linked to director heterogeneity, we compute changes in the market valuation of banks linked to announcements of executive director appointments. Our study uncovers two important findings. First, we show that executive director age, education and prior work experience create shareholder wealth while gender is not linked to measurable value effects. Second, the wealth effects are moderated by the level of influence of incoming directors, with the magnitude of valuation effects diminished under independent boards and higher if the incoming director joins as a CEO. Our results are robust to the treatment of selection bias. By illustrating the wealth effects linked to executive director appointments, our study contributes to the current debate on whether and how individual directors matter for firm performance and behaviour. The findings also shed light on the value of human capital in the banking industry. Our study offers important insights to policymakers charged with ensuring the competency of individuals in banking. Our findings advocate policies that mandate banks to appoint directors that are highly qualified and have relevant banking experience. However, attempts to increase the proportion of female executives to boost bank performance are not supported by our findings.

Keywords: Banks, Executives, Market value, Age, Gender, Education, Experience

JEL Classification: G21, G34, I21, J16