The Performance Effects of Board Heterogeneity: What Works for EU Banks?

The European Journal of Finance, Forthcoming

Posted: 29 Oct 2018

See all articles by Francesca Arnaboldi

Francesca Arnaboldi

University of Milan

Barbara Casu

City University London - Sir John Cass Business School

Elena Kalotychou

Cass Business School, City, University of London

Anna Sarkisyan

University of Essex - Essex Business School

Date Written: May 9, 2018

Abstract

We examine the impact of board heterogeneity on the performance of EU listed banks in the wake of the global financial crisis. In a comprehensive set-up, we consider standard board features (type, tenure, size, and age of board members) as well as board diversity features (gender diversity, employee representation, internationalisation, and age diversity). We propose a diversity index, which summarises the different dimensions of diversity and control for unobserved heterogeneity and reverse causality. Our analysis uncovers a complex relationship between board heterogeneity and bank performance, which is influenced by market conditions and by national culture. Overall board diversity does not seem to affect bank performance, but it does decrease performance variability during the Eurozone crisis and in countries culturally more open to diversity. Different board and diversity features have a positive impact on bank performance (size, tenure, and employee representation); the relationship is non-linear, with the effect of diversity being more relevant when there is a significant proportion of minority representatives. While substantial board internationalisation has a negative impact on bank performance, the presence of foreign directors appears to be less detrimental during the Eurozone crisis and in countries that are more welcoming towards diversity.

Keywords: corporate governance, board composition, board diversity, bank performance

JEL Classification: G21, G30

Suggested Citation

Arnaboldi, Francesca and Casu, Barbara and Kalotychou, Elena and Sarkisyan, Anna, The Performance Effects of Board Heterogeneity: What Works for EU Banks? (May 9, 2018). The European Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3261163

Francesca Arnaboldi (Contact Author)

University of Milan ( email )

Via Festa del Perdono 7
Milan, 20122
Italy

Barbara Casu

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Elena Kalotychou

Cass Business School, City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZ
Great Britain

Anna Sarkisyan

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

HOME PAGE: http://www.essex.ac.uk/ebs/staff/profile.aspx?ID=2004

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