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Can Bank Boards Prevent Misconduct?

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  • Duc Duy Nguyen
  • Jens Hagendorff
  • Arman Eshraghi

Abstract

We study regulatory enforcement actions issued against US banks to show that both board monitoring and advising are effective in preventing misconduct by banks. While better monitoring by boards prevents all categories of misconduct, better advising prevents misconduct of a technical nature. Board monitoring increases the likelihood that misconduct is detected, increases the penalties imposed on the CEO, and alleviates shareholder wealth losses following the detection of misconduct by regulators. Our article offers novel insights on how to structure bank boards to prevent bank misconduct.

Suggested Citation

  • Duc Duy Nguyen & Jens Hagendorff & Arman Eshraghi, 2016. "Can Bank Boards Prevent Misconduct?," Review of Finance, European Finance Association, vol. 20(1), pages 1-36.
    • Handle: RePEc:oup:revfin:v:20:y:2016:i:1:p:1-36.
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    File URL: http://hdl.handle.net/10.1093/rof/rfv011
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    References listed on IDEAS

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    1. Hermalin, Benjamin E & Weisbach, Michael S, 1998. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," American Economic Review, American Economic Association, vol. 88(1), pages 96-118, March.
    2. Renée B. Adams & Daniel Ferreira, 2007. "A Theory of Friendly Boards," Journal of Finance, American Finance Association, vol. 62(1), pages 217-250, February.
    3. John M. Connor, 2010. "Recidivism Revealed: Private International Cartels 1990-2009," CPI Journal, Competition Policy International, vol. 6.
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