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Corporate Governance in Banking: The Role of the Board of Directors

Author

Listed:
  • Pablo de Andrés
  • Eleuterio Vallelado

    (Department of Financial Economics and Accounting, University of Valladolid.)

Abstract

We use a sample of large international commercial banks to test hypotheses on the dual role of boards of directors. We use a suitable econometric model (two step system estimator) to solve the well-known endogeneity problem in corporate governance literature, and demonstrate the empirical and theoretical superiority of system estimator over OLS and Within estimators. We find an inverted U-shaped relation between bank performance and board size, and between the proportion of non-executive directors and performance. Our results show that bank board composition and size are related to directors’ ability to monitor and advise management, and that larger and not excessively independent boards might prove more efficient in monitoring and advising functions, and create more value. All of these relations hold after we contro l for the measure of performance, the weight of the banking industry in each country, bank ownership, and regulatory and institutional differences.

Suggested Citation

  • Pablo de Andrés & Eleuterio Vallelado, 2006. "Corporate Governance in Banking: The Role of the Board of Directors," Working Papers 0604, Departament Empresa, Universitat Autònoma de Barcelona, revised Jun 2006.
    • Handle: RePEc:bbe:wpaper:0604
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate Governance; Board of Directors; Commercial Banks.;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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