Abstract
AbstractWe examine the effect of a chief executive officer (CEO)'s expertise power on bank diversification. Using US bank data from 1990 to 2020, we find that a CEO's expertise power is positively associated with bank diversification. Market competition and board composition (size and independence) positively affect this relationship. We also find that CEO delta and vega are the underlying mechanisms through which expertise power leads to greater diversification. We address endogeneity concerns using the two‐stage least squares, Heckman estimation and the difference‐in‐differences approaches and check result robustness in several ways. We provide a new explanation for bank diversification that is useful for policymakers in developing a bank strategy concerning CEO behaviour in diversification.
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