Does Diversity of Bank Board Members Affect Performance and Risk? Evidence from an Emerging Market

41 Pages Posted: 4 Sep 2014 Last revised: 16 Oct 2014

See all articles by Bowo Setiyono

Bowo Setiyono

Université de Limoges, LAPE; Universitas Gadjah Mada (UGM) - Faculty of Economics and Business (FEB)

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Date Written: September 30, 2014

Abstract

This study investigates the influence of background diversity of bank board members on performance and risk. Using data from Indonesian banks from 2001 to 2011 covering 4200 individual year observations and 21 ethnic groups, we estimate the degree of diversity by considering various aspects (gender, citizenship, age, experience, tenure, ethnicity, nationality, education level and type) and find significant impacts on bank performance. On the whole, diversity is in general positively associated with performance except when it relates to ethnicity. It not only reduces performance per se but also increases risk. Female presence and professional diversity reduce risk but nationality and ethnicity diversities are associated with higher risk. Education diversity generally leads to higher income volatility and leverage risk. Our results are generally robust to various alternative performance measures, including risk adjusted returns, and estimation methods.

Keywords: Bank Board, Performance, Risk, Diversity, Ethnicity, Emerging Market

JEL Classification: G21, G30, G34, J15, M14

Suggested Citation

Setiyono, Bowo and Tarazi, Amine, Does Diversity of Bank Board Members Affect Performance and Risk? Evidence from an Emerging Market (September 30, 2014). Available at SSRN: https://ssrn.com/abstract=2491145 or http://dx.doi.org/10.2139/ssrn.2491145

Bowo Setiyono (Contact Author)

Université de Limoges, LAPE ( email )

5 rue Félix Eboué BP3127
LIMOGES, 87031
France

Universitas Gadjah Mada (UGM) - Faculty of Economics and Business (FEB)

Jl. Humaniora, Bulaksumur
Sleman
Jogjakarta, DI Yogyakarta 55281
Indonesia

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

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