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

41 Pages Posted: 15 Jan 2015

See all articles by Richard S. Grossman

Richard S. Grossman

Wesleyan University - Economics Department; Institute for Quantitative Social Sciences - Harvard University; Centre for Economic Policy Research

Masami Imai

Wesleyan University

Multiple version iconThere are 3 versions of this paper

Date Written: December 30, 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.

Keywords: private finance, corporate governance, capital markets, banks, economic history

JEL Classification: N230

Suggested Citation

Grossman, Richard S. and Imai, Masami, Taking the Lord's Name in Vain: The Impact of Connected Directors on 19th Century British Banks (December 30, 2014). CESifo Working Paper Series No. 5129. Available at SSRN: https://ssrn.com/abstract=2550099

Richard S. Grossman (Contact Author)

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

Centre for Economic Policy Research ( email )

London
United Kingdom

Masami Imai

Wesleyan University ( email )

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

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