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Do Board Characteristics Affect Bank Performance? Evidence from the Eurozone

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Abstract

This study analyzed the effect of board structure characteristics on bank performance. Over a sample of 50 banks in five Eurozone countries, including the UK, Germany, France, Italy, and Spain, during the period 2000–2019, our empirical evidence has suggested that most board characteristics increase bank performance, while the separation of the roles of CEO and chairman inhibits it. By using fixed effects and random effects regressions, as well as a pooled OLS panel data estimation, we have found that a board size of between 7 and 10 has a significant impact on bank performance. In addition to board size, we have also found that board independence has a positive and significant impact on bank performance. Furthermore, results have shown that the number of board meetings and financial experts plays an important role on bank performance. In contrast, there is no considerable increase in bank performance when the role of CEO and chairman is separated.

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Notes

  1. Principles for Enhancing Corporate Governance, September 1999, February 2006, and BCBS 2010.

  2. Directors not having any relationship with the company.

  3. Fitch sources its data through financial statements “… directly through web crawlers, alerts, by direct request and data feed.” See https://app.fitchconnect.com/support for more detail.

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Authors and Affiliations

  1. University of Tunis El Manar, Faculty of Economics and Management of Tunis, Tunis, Tunisia

    Ahmed Bouteska

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Appendix: The Impact of Optimal Board Size on Bank Performance (ROA)

Appendix: The Impact of Optimal Board Size on Bank Performance (ROA)

Variable

BSIZE 7–10

BSIZE > 10

(1)

(2)

Intercept

− 0.2770

(0.7866)

1.4842***

(0.0011)

BSIZE

0.1183**

(0.0228)

0.0112

(0.5040)

INDP

0.0086***

(0.0095)

0.0038**

(0.0189)

DUAL

− 0.2545**

(0.0382)

− 0.2586**

(0.0105)

BMEETING

− 0.0093

(0.6587)

− 0.0251**

(0.0426)

BFE

0.0134***

(0.0007)

0.0014

(0.5162)

BANKSIZE

0.1759***

(0.0022)

− 0.0073

(0.7189)

LOAN

− 0.2301***

(0.0060)

− 0.0256

(0.4995)

CAPITAL

− 0.2338***

(0.0002)

− 0.0197

(0.6110)

Adjusted R2

0.1795

0.0203

F-statistic (P value)

7.5268***

(0.0003)

3.0274

(0.2418)

No. observations

552

298

  1. This table reports regressions of ROA on optimal board size and various bank characteristics during sample period January 2000 to December 2019. Variables are defined in Table 2
  2. P values are in parentheses and *, **, ***significance at the 10, 5, and 1% level

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Bouteska, A. Do Board Characteristics Affect Bank Performance? Evidence from the Eurozone. J Asset Manag 21, 535–548 (2020). https://doi.org/10.1057/s41260-020-00181-2

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