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The relationship between board characteristics and performance of bank holding companies: before and during the financial crisis

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Abstract

We examine the relationship between performance of the bank holding company and several board characteristics. We find that board size, CEO tenure and board tenure enhance bank performance. However, we find no evidence that board structure or CEO power influences bank performance. More importantly, we show that the effect of board characteristics during the crisis is quite different. During the crisis, board size has a negative effect on Tobin’s Q and the non-performing asset ratio, which supports Jensen’s (1993) argument that large boards are less likely to function effectively. Further, we report that the non-performing asset ratio decreases with board independence during the crisis.

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Notes

  1. There are other governance structures mandated by this Act that are out of scope of this study.

  2. See Duan et al. (1992) and Goldberg and Harikumar (1991).

  3. It should be noted that although previous literature reports that the Sarbanes-Oxley Act of 2002 has had an effect on board behavior (Renas and Cebula 2005) and that shareholder proposals may reduce agency costs (Boylan et al. 2014), we do not address either of these issues in our study.

  4. We also estimated a pooled regression using the same data; most of the results presented in this section remain unchanged. These results are available from the authors upon request.

  5. Since this is a result from a slope dummy, the negative result is compared to the average slope coefficient of the entire sample period.

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Acknowledgments

The authors would like to thank J. Ronnie Davis and Atsuyuki Naka from the University of New Orleans for their helpful comments as well as the discussants at the 2012 Southwestern Financial Management Association Annual meeting and the 2012 Financial Management Association International Annual meetings.

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Authors and Affiliations

  1. College of Business and Public Administration, Southern University at New Orleans, 6400 Press Drive, New Orleans, LA, 70126, USA

    Jennifer O’Sullivan

  2. Edwards School of Business, 78 PotashCorp Centre, University of Saskatchewan, 25 Campus Drive, Saskatoon, SK, S7N 5A7, Canada

    Abdullah Mamun

  3. Department of Economics and Finance, University of New Orleans, 2000 Lakeshore Drive, New Orleans, LA, 70148, USA

    M. Kabir Hassan

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  1. Jennifer O’Sullivan
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  2. Abdullah Mamun
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  3. M. Kabir Hassan
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Correspondence to Abdullah Mamun.

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O’Sullivan, J., Mamun, A. & Hassan, M.K. The relationship between board characteristics and performance of bank holding companies: before and during the financial crisis. J Econ Finan 40, 438–471 (2016). https://doi.org/10.1007/s12197-014-9312-4

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