Bankers on the Boards of German Firms: What They Do, What They Are Worth, and Why They Are (Still) There*

Abstract

In this paper, we analyze the role of bankers on the boards of German non-financial companies. We assemble a unique panel data set for 137 firms and 11 banks for the period from 1993 to 2005 and investigate if bankers act as monitors of their equity interests or their interests as lenders, as capital market experts, or if they help to advance the commercial banking services and the investment banking services of their banks. We find convincing evidence that bankers promote their M&A advisory services, but we find no or little evidence for all other hypotheses that have been formulated in the literature. Our main conclusions are that bankers extract private benefits from their board seats and that banks benefit because bankers on the board become industry experts. Non-financial firms do not benefit because bank representation on their boards reduces their valuations. JEL classifications: G21, G34