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Taking the Lord's Name in Vain: The Impact of Connected Directors on 19th Century British Banks

42 Pages Posted: 1 Dec 2014  

Masami Imai

Wesleyan University

Richard S. Grossman

Wesleyan University - Economics Department; Institute for Quantitative Social Sciences - Harvard University

Multiple version iconThere are 3 versions of this paper

Date Written: November 2014

Abstract

This paper utilizes data on the presence of prominent individuals — that is, those with political (e.g., Members of Parliament) and aristocratic titles (e.g., lords) — on the boards of directors of English and Welsh banks from 1879-1909 to investigate whether the appointment of well-connected directors enhanced equity value for bank shareholders. Our analysis of panel data shows that the appointment of connected directors did not increase the rate of return on bank equity. In fact, we find that the appointment of MPs to directorships had negative effects on bank equity returns. Our event-study analysis corroborates this finding, showing that a bank’s shares exhibited negative abnormal returns when their directors were elected to Parliament. Taken together, our results indicate that connected directors yielded little — or even negative — economic payoff to bank shareholders in pre-war Britain.

Suggested Citation

Imai, Masami and Grossman, Richard S., Taking the Lord's Name in Vain: The Impact of Connected Directors on 19th Century British Banks (November 2014). Tokyo Center for Economic Research (TCER) Paper No. E-86. Available at SSRN: https://ssrn.com/abstract=2532233

Masami Imai (Contact Author)

Wesleyan University ( email )

Middletown, CT 06459
United States
860-685-2155 (Phone)

Richard S. Grossman

Wesleyan University - Economics Department ( email )

Middletown, CT 06459
United States
(860) 685-2356 (Phone)
(860) 685-2781 (Fax)

HOME PAGE: http://rgrossman.web.wesleyan.edu

Institute for Quantitative Social Sciences - Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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